The rapid pace of Globalization has led to a change in the global economy during the past several decades; it is believe that factors such as trade liberalisation, access to cheaper labour and resources, similarity of consumer demand around the world, and advances in technology and communication has widened the market of consumption, investment as well as production on a global scale. These globalization driven factors created new challenges and global competition for businesses around the world thus as a response many companies decided to expand their operation across national borders in order to be competitive. A company that operates their business in at least one country other than its country is called Multinational Corporation (MNC). According to Claus (1998) the two fundamental differences between the domestic and international company are the spread of geographic location of the company’s operations and the nature of multiculturalism. The number of MNC is increasing faster than ever where today its not surprising to find major MNCs such as McDonalds, Toyota, Nike and Microsoft almost in every country. Tayeb (2005) indicate that MNCs played a powerful and dominant role in the globalisation where they are considered to be the main vehicle that enables goods and services to move around the world. However, when company decided to internationalise their operation they will be expose to various environment, culture, legal and political differences and in order to operate successfully they should be able to modify its products and services to meet the cultural preference of their foreign customer as well as able to adjust their operation to comply with the local legal requirement (Tayeb, 2003). To operate its subsidiaries MNC will likely to employ local people and manager, it should be noted however that these employees came from a different organization culture background with different working styles compare to their employees in the Headquarter. Therefore, this is where international human resource management (IHRM) become an important issue for the organization, Briscoe et al (2004) underline that HR management is becoming more complex in the international level, therefore, it is crucial for the organization to execute the right HR strategy for their international operations. The purpose of this essay is to discuss the internal and external factors of MNCs that may affecting their decision in choosing International HR strategy for their subsidiaries. The essay will shape as follow: it will begin with a brief introduction of what is IHRM, how it is different with domestic HR and what makes IHRM strategy important for MNCs performance. Follow by an investigation and discussion of internal and external factors of MNCs and how these factors can influence MNCs IHRM practices. Hofstede’s culture dimension theory with an example of different countries and cases of MNCs will be use to support the discussion of the topic.
International Human Resource Management
Before we define the meaning of International we should have an understanding of the basic HRM. By definition Human Resource Management is a system that is used by organization to ensure that human talent is used effectively and efficiently to meet its organizational goals (Mathis and Jackson, 2004). HRM usually covers functional areas such as human resource planning, staffing, reward and motivation, performance management and many others, however, these activities changes when HRM goes internationally. With an increasing number of MNCs around the world the role of international HRM becoming important to the internationalisation process, IHRM has been identified as a powerful strategic tool that help company’s to formulate and implementing their international business strategies and improvement of their subsidiaries performance (Kim and Gray, 2005).
What is International Human Resource Management? Schuler et al (1993) defined IHRM as human...