Unit 5 (1).pptx international human resource management

international human resource management

1. Unit 5 Employment Practices (20MBAHR403) )

2. INTRODUCTION Strategic decision making within MNCs is constrained, and sometimes determined, by the implementation of laws and codes of practices and by presence and by pressure from political actors, including national governments, supranational institutions such as the EU and non-governmental organizations (NGOs) operating at various levels. The political and economic dimensions are not clearly separated entities, but have a symbiotic and mutually defining relationship. Political agendas are shaped by economic circumstances and perspectives, in turn economic relations are subject to the influence of policy and political pressure. That is to say, there are dominant viewpoints within the political contexts of IHRM and HRM that change over time and which frame the way firms will react to economic factors such as wages and employment contracts.

3. WHAT IS REGULATION AND WHY IS THE POLITICAL CONTEXT IMPORTANT ? The concept of regulation is perhaps best understood from the perspective of the purpose it serves. The purpose of regulation is to facilitate social and economic reproduction that is to ensure a supply of ‘orderly’ and effective labour and a social environment supportive of economic development. R egulation provides a stable environment, which offers some predictability regarding the conduct of agents operating within that environment. Whereas the development of standard expectations regarding the behavior of others provides the basis for social and economic interaction and reproduction. It has been long recognized that regulation involves a variety of actors such as state bodies, trade unions and management networks, to name some key examples. Regulation also consists of a variety of levels and relations between them . The regulatory roles of organized labour ( e.g trade unions) and organized capital

4. ( e.g. employer organizations or networks), for instance, interrelate at various levels from the macro- level peak organizations of national employer federations and trade unions organizations to regional or sectoral level of mechanisms and on to the level of company and workplace relations between management and trade unions, which may also include less institutionalized, informal practices. Individuals and organizations may simultaneously operate within and be subject to a multiplicity of regulatory actors in terms of the state, employers, mechanisms of joint framework of relative stability, a space within which economic and social actors can act with reasonable confidence regarding the actions of others. Regulation therefore varies by context.

5. WHY ARE THERE POLITICAL AGENDAS TO DE-REGULATE Historically, approaches to HRM have been nationally contextualized in terms of government regulatory influence, national cultures and political processes. The implementation of workers rights on such issues as work place participation, from the right to information regarding employment issues to the right to be represented in decision making processes, was not the same across these countries; nor was protection against discrimination on the basis of gender or ethnicity consistently upheld; similarly, investment in skills differed across national systems as did the permissiveness of protection against dismissal. Regulatory bodies and agencies reflect particular political views and economic orientations, which influence their role and impact. Such framing occurs whether they are state agencies or voluntary and social organizations contributing to the system of regulation.

6. What began to emerge in the mid-to-late 1970s was a political view of regulation per se as being costly and prohibitive for the firm and for society in general. The argument is relevant to HRM and IHRM because it underpins a series of narratives around strengthening management prerogative, or the right of management to manage without much external interference, and around making workers become more flexible in terms of their deployment in the firm or the cost to employers of their dismissal The basic contours of the argument are as follows. The state and regulation should play a less central role in economic management generally and in circumscribing the operations of the firm, including its HRM practices. Through the imperative of international competition, the market will force organizations to be more efficient and dynamic.

7. WHAT ARE THE POLITICAL AND INSTITUTIONAL DRIVES OF DE- REGULATION The process by which models of HRM/ IHRM become predominant within firms is often not through some natural or inevitable evolutionary adaptation but actually emerges as the outcome of a variety of pressures. These pressures arise in the form of isomorphism, be it coercive, whereby companies are forced to comply due to strong sanctions, or mimetic, where companies copy practices because they are seen as successful or currently the best way to work. The implementation of IHRM practices is a political process that involves various actors attempts to impose ideas and practices and is a conscious struggle between them over strategies and ideas. Within this general framework of ideas and initiatives we also see the development and dissemination of expert knowledge through global university and business school networks. What we are arguing here is that the politics and economics of IHRM is as much about a variety of actors disseminating ideas and values, as it is about natural adaptation. Such approaches forged through agency and political processes, and are not simply the natural or best outcome in the light of the needs of the new global market.

8. WHAT ARE THE PROBLEMS WITH DE- REGULATION AND WHAT IS CURRENTLY MEANT BY RE- REGULATION IN A GLOBAL CONTEXT ? Due to their dynamic nature, the political landscapes of IHRM and the management of labour by MNCs have not stood still. The late 1990s began to see a change in the politics of labour management and a new set of actors emerge who were internationally intent on raising alternative approaches and issues. The cost of unfettered MNC development in terms of uneven and unfair labor standards, the increasing concern with the social condition of employment throughout the world, and the gradual increase in ethical issues placed on the agenda of business management meant that a new set of arguments and positions began to appear in the discussion of labour management. There are 3 further dimension that are important aspects of this partial return to regulation through a growing interest in re-regulation and the use of innovative forms of regulation Standardization and labour market knowledge Labour standards and codes of practice Ethics, values and context

9. Standardization and labour market knowledge First, MNCs continue to develop and edge towards the potential of global systems of employment. At the same time migration continues to be a vital part of international labour markets and at virtually all skill and educational levels. This prompts the need to create structures and frameworks that assist in sharing and validating the content of work and the skills of workers. There are extensive government networks across countries throughout the world sharing information about qualifications, apprenticeship systems, and new forms of skills development such as soft skills, which are creating common standards and templates. These systems are complemented by international networks in specific sectors with a high level of inter-state activity. 2) Labour standards and codes of practice Second, there is increasing interest in labour standards and the behaviour of employers from a range of bodies that are concerned with issues of malpractice, corruption and ‘bad’ employment practices.

10. The ILO sets the benchmark against which firms and governments are measured in this area. Political sensitivities around issues such as child labour are directly informed by compliance to ILO standards. Furthermore, the ILO provides standards across the range of everyday employment issues which attract less media attention. 3) Ethics, values and context Third, the developments described above dovetail with an increasing interest in social responsibility and ethics within HRM- the growing belief that firms have to realize and act on the social impact of their actions and not just the economic effects. The internet has provided a forum for discussion and a conduit for the transmission of critiques of MNCs and the articulation of alternative, progressive perspectives on consumption. Consumer groups are utilizing this medium to bring pressure to bear on the activities of MNCs and the ethicality of their approach to issues such as employment and sustainable resourcing.

11. HUMAN RESOURCE MANAGEMNET IN CROSS- BORDER MERGERS AND ACQUISTIONS Mergers and acquisitions have become an increasingly popular strategy for achieving corporate growth and diversification, and there has been a dramatic growth in M &As in the global marketplace during the last two decades. During this period the global profile of M &As has changed. One significant shift is that the proportion of cross-border M & As increased from less than 30 per cent in 2000 to nearly a half of the total value of M & As worldwide a decade later. The ultimate driver of cross-border M &A activity is the increase in global competition and the corresponding erosion of national boundaries. Companies have followed their customers as they respond to the pressures of obtaining scale in a rapidly consolidating global economy. M &A failures are often due to problems of integrating the different cultures and workforces of the combined firms.

12. CULTURAL DIFFERENCE AND CROSS- BORDER M & A PERFORMANCE

13. It has often been argued that cross-border M &As may be less successful than domestic transactions, largely due to the greater ‘Cultural distance’ ‘Cultural misfit’ ‘Management style dissimilarity’ or Acquisition cultural risk involved in cross-border deals. This logic suggests that achieving organizational fit, mutual understanding and value creation in cross-border M & As is a particularly arduous task due to the problem of double-layered acculturation. In addition, both national and international levels, similarities in norms and values facilitate the development of trust, which has been shown to be an important factor in post-acquisition success. Also, companies that acquire internationally often have prior M &A experience, learning from their mistakes and implementing processes that enable them to execute cross-border deals more and more effectively. Higher cultural distance can also help members of merging organizations become psychologically prepared for the upcoming changes and challenges.

14. Beyond cultural difference In summary, there is evidence that cross-border M &As, under some circumstances at least, can be more successful than domestic deals, and that the inherent cultural differences can be as much of an asset as a liability. First, it is important to distinguish between different levels of culture. For example, in a related acquisition that may need a high degree of business integration, cultural differences can create tensions that make integration more difficult. However, these differences are more likely to be due to differences in organizational than national culture. Second, the nature of the deal matters (Chakrabarti et al., 2009). Cultural differences were found to be positively associated with post-acquisition performance in M &As that required lower integration, probably due to increased opportunities for mutual learning. Successful acquirers are not afraid of cultural differences – they learn how to manage them.

15. What does integration mean ? In a merger or acquisition, the concept of ‘integration’ has different meanings depending on the strategic logic behind the merger in question. Most companies use the term ‘integration’ to describe the post-merger activities designed to bind the two companies. But what happens in many integration processes is actually assimilation, a process that is fundamentally different from & ‘true’ integration- indeed, the vast majority of so-called mergers are in fact acquisitions. Strategies for post- merger outcomes

16. Preservation acquisitions The acquired company will preserve its independence and cultural autonomy. This often occurs not only in cross-border deals when explicit ‘outsider’ control may be resented, but also when one of the rationales behind the merger is to secure talented management or other soft skills (such as speed of product development) and to retain them; or when conformance to the rules and systems of the acquiring company could be detrimental to the acquired company’s competitive advantage) 2) Absorption acquisition Acquisition is fairly straightforward, and it is probably most common when there are differences in size and sophistication between the two partners involved in the deal. The acquired company conforms to the acquirer’s way of working and the focus is on full cultural assimilation. Such deals are particularly common when the acquired company is performing poorly, or when the market conditions force consolidation. The majority of the synergies may be related to cost cutting, most likely on the side of the acquired company, although some may come from improvements in systems and processes introduced by the acquiring firm.

17. 3) Reverse mergers This is the mirror opposite of assimilation, although it does not happen that frequently. In a reverse merger, the organization that makes the purchase usually hopes to gain capabilities from the acquired company. Recently, more and more Chinese firms have attempted to buy companies in Europe in order to acquire capabilities to move the whole company towards higher value-added products, or to achieve an ‘instant’ global reach. 4) Best of both This intriguing option is meant to be the ‘best of both’ worlds and is often described as a merger of equals. This holds out the promise of no pain since in theory it adopts best practices from both sides and integrates them. The strength of a culture comes from the internal consistency of the practices, which may evaporate when the best parts from different organizations are put together 5) Transformation In contrast with ‘best of both’ acquisitions that take the existing cultures as they are, both companies in a transformation merger are hoping to use the merger to break sharply with the past. Merger or acquisition can be the catalyst for trying to do things differently, for reinventing oneself

18. Example: Focus on the way in which the company is run, what business it is in, or both. When Novartis was created by the merger of two Swiss-based pharmaceutical firms, the proposed management style for the new company reflected the desired transformation: ‘We will listen more than Sandoz, but decide more than Ciba.’ MANAGING CROSS BORDER INTEGERATION: THE HRM IMPLICATION Meaning : Cultural issues is one of the most critical elements in achieving the cross-border acquisition strategy. The acquisition process is typically divided into stages - the initial planning stage, including due diligence, the closing of the deal; and the post-merger integration stage. The objective of the acquisition is to establish a new geographic presence, then managing people, communication and cross-cultural issues are top of the list of priorities. When the aim is to acquire new technology or to buy market share or competencies, retaining key technical employees or account managers is the principal challenge

19. Cultural and people issues that are critical to the success or failure of mergers and acquisitions: assessing culture undertaking a human capital audit and selecting the management team effective communication retaining talent creating the new culture managing the transition Assessing culture in the due diligence phase The purpose of cultural assessment is to evaluate factors that may influence the organizational fit, to understand the future cultural dynamics as the two organizations merge, and to prepare a plan for how the cultural issues should be addressed if the deal goes forward. Before a valid cultural integration strategy can be developed on the part of the acquiring company, or between the two merger partners, differences and similarities of the cultures of both companies must be well understood. This crucial step is often neglected, sometimes even ignored, in most M&A planning processes.

20. What are their core beliefs about what it takes to win? What drives their business strategy? Tradition or innovation? Is the company short-term or long-term in its outlook and execution of initiatives?   How much risk is the company used to accepting? Is the company results-oriented or process-oriented?  How is power distributed throughout the company?  How are decisions made: consultation, consensus or authority? How is information managed and shared? Undertaking a human capital audit and selecting the management team There are two dimensions to the human capital audit. One dimension is preventive, focused on L iabilities such as pension plan obligations, outstanding grievances and employee litigation. It also includes comparing the compensation policies, benefits and labour contracts of both firms. The other dimension is focused on talent identification, and in the long run it is probably more critical to the success of the acquisition

21. Here are some examples of questions to consider:  What kind of employees creates most value for the organization?  What unique skills do the employees have? How does the target's talent compare to the quality of our own?  What is the background of the management team? What are the reporting relationships?  What will happen if some of the management team leave?  What is the compensation philosophy? Retaining talent Effective and open communication is the foundation for retaining talent. While financial incentives are also important (stock options, retention bonuses or other incentives given to employees who stay through the integration or until completion of a specific merger-related project), they cannot substitute for a one-on-one relationship with executives from the acquiring firm

22. Talent retention efforts should not stop after the completion of the first hundred days of integration. Junior employees may find the initial impact of the acquisition to be quite positive, offering them opportunities for responsibility and higher pay. Even so, many of them will depart later if they do not become integrated into the leadership development of the new parent company. Integration manager and transition team Post-merger integration is always a delicate and complicated process. After closing, the due diligence team with its deep knowledge of the acquired company disbands or goes on to another deal. Meanwhile, the new management team is not yet fully in place. To avoid the vacuum, companies are increasingly turning to dedicated integration managers supported by transition teams. The role of the integration manager is to guide the integration process, making sure that timelines are followed and that key decisions are taken according to the agreed schedule. The first task is to spell out the logic of the new business model and translate this into operational targets.

23. Transition teams are most effective when members come from both the acquired and acquiring companies. By facilitating personnel exchange, the transition team can help to develop a better understanding of each other's capabilities. People who are suited for a transition team usually have a mix of functional and interpersonal competencies (including cross-cultural skills),backed up by strong analytical skills. Moving with speed Sometimes, foreign acquirers fear of cultural backlash slows down the process. At one foreign owned financial company in Japan, the implementation of several elements of performance based global HR policies was suspended for two years to give employees a chance to adapt.   The issue of speed is embedded within different contexts (institutional environment, socio economic context, competitive dynamics, within organization rhythms) and considerations of time itself. 2. An absorption strategy generally requires more urgency than a 'best of both approach. When the objective of the acquisition is to acquire knowledge and intellectual capital, the pace of change must be particularly carefully calibrated to minimize the risk of alienating talent.