The Differences In Between Multinationals and International Companies

Clear differences in cultures around the world create challenges for human resource management, particularly companies which operate in radically different countries. Global companies have tended to choose between two main philosophies in business, the multinational, localised method for human resource management and the international method, which is more centralised. Each of them have their own distinct strengths and advantages, with the most effective option being dependent on the breadth of cultural differences in the company and the tasks and relationships of workers (both between each other and with their employer).

Globalisation
Globalisation has extended international business’s scope, from merely exchanging goods between companies and organisations between borders to corporations which have many physical operations and services in many countries of the world. Geography is no longer as important factor to these global companies, who are able to move their resources across continents.

Culture
However, despite the relative ease of transferring factors of production or capital to other countries cultural differences distinct effects as a result of different norms and values are still significant and crucial for high levels of profit. Differences are especially more pronounced between western and eastern countries. For example, Japanese employees are highly collective (work as a team and have huge respect for authority (high power distance). On the other hand, an American employee is highly individualistic (values themselves over their team) and have a low power distance (as they feel entitled to challenge authority figures and possibly ridicule). This creates challenges for human resources and a number of solutions

Multinational Method: The Local Approach
For multinational companies there is a priority of using local strengths and characteristics and ensuring that they are employed with the company’s global vision.. This hands-off method is often used by companies who accept these differences between their home country and their foreign subsidiary. In such a situation the affiliates would have significant local authority in human resource policies such as recruitment and remuneration. In this case only human resources control from headquarters would be financial.

Often this is because it is considered that there are specific benefits as a result, such as bridging cultural differences within the organisation. In these cases there are felt to be more benefits to build on what employees know and are comfortable with as a result of cultural conditioning than to force them to change their natural viewpoint and structure. This method allows the affiliates to concentrate more on their clients more effectively, allowing them to be highly responsive to movements in the markets. This method tends to get used more in situations where social cultural diversity is more significant than technical and product operation as these reflect cultural norms more easily. Equality of the recruitment in the developing world is going to be highly important in the future. The developing worlds labour force is no longer cheap labour but highly skilled, especially given the lower wages. Because of the more positive emphasis put on local customs and experience it is much easier for multinational companies to recognise the benefit of local knowledge compared to hiring expensive expat employees to perform the same task.

However, if business and human resource policy is too focused on local trends this results in the subsidiary following the principle goals of the parent company. As a result the decentralised company fails to improve international coordination in projects, one of the main benefits of global business. Also, the possible benefits that made the parent company so successful initially may be mistranslated by the subsidiary offshoots in other countries with not enough centralisation.

International Method: The Global Approach
International companies have a unified approach to business which extends to human resource systems. They have more centralised processes, such as recruitment remuneration and promotion as the perceived wisdom on managerial theory was so successful in the parent company (and possibly other countries) that its values should be exported despite possible costs in restructuring and reducing local flexibility.

This method is particularly useful in more technical procedures and product operation as these methods can usually be introduced with little disruption to what the workers are used to. For example, cultural factors make less impact on decisions to introduce more western processes in a Chinese factory than in a Chinese computer software company.

On the other hand, the assumption that a company’s philosophies are so great that they can be exported everywhere can create a level of arrogance that is easily observable in human resources. These tend to be highly expensive as a result of expecting lots of perks to match their previous earnings in another country and it is difficult to encourage them to stay with the company when they return home as they become used to their levels of responsibility abroad. The over reliance of expats to implement policy in other countries creates a bias and makes companies undervalue the potential labour that they already employ locally. This can have significant effects on morale in the workforce if it becomes clear to some workers that they will be overlooked for promotion, not to mention that the more qualified employee may be overlooked. However, these cultural biases are decreasing over time.

Conclusion
There are significant differences between multinational and international companies and is highly important for international human resource managers to consider. Levels of cultural differences between the countries involved and the tasks required result in careful examination of the benefits and costs. However, both policies’ strengths and weaknesses are slowly being utilised in future international business structures, as some countries are becoming so large that they will be able to shed the skins of nationality and cultural preferences. However, until then businessmen and human resource managers will have to find some compromise.

This report was written by Jonathan McHugh in January 2006