ABC Company Pvt. Ltd is an American based company multinational company that was established in 1978. The company is one of the market leaders in electronics and technological products, such as LED TVs, smartphones, tablets, laptops, music systems, etc. The company has a workforce of around 23,000 employees and has its operations running in over 34 countries. ABC Company Pvt. Ltd. has a number of operation divisions, such as marketing & sales, manufacturing & production, finances, human resource management, etc. and has a streamlines organisational structure, which ensures higher efficiency and performance throughout the globe.
Of late, the company has been facing a tough competition from its competitors in countries like China, Australia, etc. in terms of price and quality. Some of its competitors are offering similar products to the same market base but at a considerably lower price. The strategies being implemented by the competitive firms are having an impact on the market share of the company, which has decreased by 0.7% in the past three months. As a result, the company has decided to expand its manufacturing operations to India, which is one of the top developing countries. One of the prime reasons for expanding manufacturing operations to India is to make use of the cheaper resources locally available in the country and bring about a drastic cut down in the price per unit of all those products that the company manufactures.
Expanding to India can be a difficult process for the company because of the cultural differences, also known as cross cultural differences, that exist between the two countries. Culture, in simple words, is defined as the set of morals, ethics, values, languages, cuisines, ethnicity, etc. that governs the behaviour or social conduct of an individual or a group of individuals (Heine, 2015). There can be a substantial amount of cultural differences between two countries, which introduces substantial amount of differences in the way in which people belonging from two countries deal with each other, communicate, perceive, etc. (Thomas & Peterson, 2017) Therefore, cross cultural communication is being given a lot of importance in multinational business organisations as it can have a have a huge impact on the chances of success of a company.
ABC Company Pvt. Ltd. strategy to open up a new subsidiary in the Indian market will involve a lot of cultural issues as the company is based in America and there are a great number of differences between the culture of the two countries, which would definitely pose a challenge to the human resource managers of the company. Therefore, in this report, we will discuss certain issues that the company is most likely going to face while trying to enter the Indian market.
International human resource management issues facing ABC Company
As discussed above, the difference in cultures of America and India will pose significant challenges to the human resource managers of the company. Some of these challenges are discussed below:
First of all, a major issue that the human resource managers of the company are most likely going to face is related with the staffing technique. It is obvious that the new subsidiary in India will run only if there will be adequate workforce employed to look after the operations and the human resource demand of the new workplace will have to be fulfilled by recruiting and selecting new employees. The managers of the company will have to implement a staffing approach out of ethnocentric, polycentric or geocentric (Lakshman, et al., 2017). In an ethnocentric approach, the top most positions in the Indian subsidiary will be held by American employees and the lower positions in the organisational hierarchy will be fulfilled by recruiting Indian employees. The company will have to send expatriates from America to India, in order to look after the work operations in case it implements an ethnocentric approach. In a polycentric approach, the top positions in the Indian subsidiary will be occupied by the Indian workforce while in a geocentric approach, the top positions are occupied by people best suited for the job, irrespective of the country to which they belong. Choosing amongst these staffing approaches can be a difficult task as each one of them has its own pros and cons. For example, an ethnocentric approach can help a company in retaining most of the control to the headquarters and ensure better reporting at the same time (Konopaske, et al., 2002). Similarly, a polycentric approach can make the expansion process simpler as the need to send expatriates to the host country reduces drastically. Therefore, choosing the right staffing approach is a huge challenge for international human resource managers as it requires a lot of careful planning and consultation with the top management.
Secondly, another major issue that the company is most likely going to face is related with expatriation. Expatriation is a process in which home country employees are sent to foreign subsidiaries for fulfilling specific work tasks and the employees being sent are called expatriates. Expatriate programs can involve heavy investment and other important resources, which makes it imperative that these programs become successful for multinational organizations. As the company is planning to shift most of its manufacturing process to a new country, it is obvious that it would have to transfer a lot of its existing employees to the host country, in order to look over the operations and to ensure that the quality of the products remains the same (Yeaton & Hall, 2008). Sending expatriates to a host country can be a challenging task for international human resource managers as it involves selecting technically sound people who are willing to leave their home country and shift to a foreign country. Further, it also becomes important for international human resource managers to check whether the employees being sent from the home country will be able to adjust in a foreign location. Expatriates, at one point of time, are also supposed to come back to their home country once their duties are fulfilled in the host country. (Schuler, et al., 2011) This process is also known as repatriation. Repatriation can also be difficult for international human resource managers as most of the expatriates are not able to adapt to different environment again and again. Therefore, expatriation and repatriation programs are one of the biggest challenges that the human resource managers of the company will face.
Thirdly, designing compensation and benefits of the workforce working in the Indian subsidiary will also be a major issue for the human resource managers. The company has had no prior experience while working with the Indian employees and is unaware of the compensation and benefits that the Indian employees are going to expect. In addition to the Indian employees, there will also be home country employees working in the same workplace. The human resource managers of the company will have to carefully design a compensation and benefit plan that is justified and can be explained to the entire workforce (Wentland, 2003). There is a high chance that some of the job positions will be filled by host country as well as a home country employee i.e. employees from both the countries might work at the same job position. Designing compensation and benefits for such jobs can be a challenging task for the managers as a difference between the salaries of the two employees can become a cause for job dissatisfaction. For the expatriates, the managers will have to offer greater salaries and benefits, such as housing allowances, standard of living allowances, medical allowances, schooling allowances and in certain cases, the company would also have to look after their families while they are away for foreign assignments (Story, et al., 2014). Therefore, the managers will have to select expatriates carefully because an expatriate who is the only working member of his or her family can be a huge burden on the resources of the company.
Fourthly, dealing with the cultural gaps will be another major issue for the human resource managers of the company. When it comes to cultural differences, India and America are poles apart from each other and a large number of differences between the cultural preferences of the Indians and that of the Americans can make expansion into India difficult (Jackson, 2002). To achieve better results, it is imperative that the host country employees and the home country employees work together in the Indian subsidiary and the cultural differences between them could result in communication barriers, which can be a setback for the company. Further, it is also important that the expatriates being sent to the host country are well aware about the host country culture because they can experience a cultural shock if they are unaware about the cultural preferences of the host country, which would make it difficult for them to adjust in a foreign environment (Templer, et al., 2006). Such a scenario can result in the failure of expatriate program, which can be a huge burden on the resources of the company. Therefore, bridging the cultural gap between the two countries will be a challenge for the human resource managers of the company.
Fifthly, the micro and macro environment factors of the Indian market are going to pose a great number of challenges for the human resource managers of the company. India is one of the top developing countries and its government is becoming powerful with each coming day. The government of India is now forming aggressive policies for foreign investors so that it can become a major power in the world (Huselid & Becker, 2011). The political and the legal environment factors of the country will be a challenge for the human resource managers. Recently, India has been shifting its focus on ‘Make in India’ projects and is promoting Indian companies to manufacture and export products to other parts of the world. Further, to deal with unemployment, the government of India is also asking foreign investors to recruit more Indians in their company if they desire to expand their operations. India has also been experiencing a lot of ‘brain drain’ in the past few decades and most of its talented population has moved to other parts of the world. With an improvement in lifestyle of the Indians, it might become difficult for the company to attract as well as retain talented Indian employees as they would demand higher salaries and greater benefits to make a shift from their previous employers. Therefore, the micro and macro environment factors of the country will also pose significant challenges for the human resource managers of the company.
Sixthly, managing diversity in the Indian subsidiary will be another issue for the human resource managers of the company. Employing host country employees, host country employees as well as some third country employees will increase the level of diversity and it will become difficult for the managers to deal with such a diverse workforce (Kossek, et al., 2006). There can be a greater number of conflicts between the employees belonging to different cultures, which can spread a negativity in the workplace. Therefore, managing workplace diversity will be an issue for the human resource managers of the company.
Lastly, training and development of the host country as well as the home country employees will be a challenge for international human resource managers of the company. It is obvious that the host country as well as the home country employees will have to undergo training and development programs to meet the performance objectives set up by the human resource managers. Designing training and development for employees belonging to different countries can be a difficult process and can require a lot of professionalism. The employees would have to be trained and developed in terms of culture and to work as a team with each other. Such a training program can be extensive and can require heavy investment of the company’s resources.
Solutions to international human resource management issues
As the issues or the challenges discussed above can be critical to the success of the company’s foreign venture, there will be a need to implement certain strategies that would enable the human resource managers of the company to deal with these issues. Some strategies are discussed below:
First of all, the management needs to follow an ethnocentric approach for staffing the foreign subsidiary, where all the senior level positions will be held by the Americans. This would allow the company to ensure better and timely reporting to the headquarters, implementation of a unified culture in the Indian subsidiary and maintaining a strict control over the quality of products (Schuler, et al., 2004). Further, recruiting Indian employees for majority of the junior level positions will also help the company in satisfying the legal considerations of the country.
Secondly, the human resource managers need to start identifying employees who are capable of being selected as expatriates to work in India well before the expansion decision is finalised (Briscoe, et al., 2012). This would provide the human resource managers with ample amount of time to assess most of the employees and select those who have a higher chance of being successful and will be a lesser burden on the resources of the company.
Thirdly, to deal with most of the cultural issues, the management can design training and development programs for Indian as well as American employees before they start working with each other. The management can implement programs that will be aimed at increasing the cultural awareness of the employees towards each other’s cultural values and preferences using case studies and secondary sources of data (Assesshub, 2016). This will prevent the employees from experiencing a cultural shock when they start working with each other.
Fourthly, the management of the company can initially hire experienced Indian personnel to help them with the expansion part. As the company has no prior experience of working in India, it will be best suited for the company to hire professional Indian personnel who have experience with Indian laws and regulations and would be able to assist the company in getting all the clearances that it requires (Cieri, et al., 2007). Thus, it would become easier for the company to expand its operations in India.
Expanding into new foreign markets can be a nightmare for international human resource managers because of the challenges that are associated with cross cultural communication and micro and macro environment factors of different countries. Issues like expatriation, repatriation, bridging of cultural differences, compensation and benefits of host country and home country employees, training and development, legal policies, social & economic conditions, etc. can have a huge impact on the expansion strategy of a company and can make management of human resources very challenging for the managers.
Even then, the benefits of expanding into multiple foreign markets far outweigh the challenges that the human resource managers have to deal with. Therefore, by designing and implementing the right human resource management practices and by hiring experienced managers, business organisations can increase the chances of their foreign ventures and can become a tough competition in the global market.
Thomas, D. C. & Peterson, M. F., 2017. Cross-cultural management: Essential concepts. Sage Publications.. s.l.:Sage Publications.
Heine, S., 2015. Cultural psychology: Third International Student Edition. s.l.:WW Norton & Company.
Lakshman, S., Lakshman, C. & Estay, C., 2017. The relationship between MNCs’ strategies and executive staffing. International Journal of Organizational Analysis, 25(2), pp. 233-250.
Konopaske, R., Werner, S. & Neupert, K., 2002. Entry mode strategy and performance: the role of FDI staffing. Journal of Business Research, 55(9), pp. 759-770.
Yeaton, K. & Hall, N., 2008. Reducing failure rates. Journal of Corporate Accounting & Finance,, 19(3), pp. 75-78.
Schuler, R., Jackson, S. & Tarique, I., 2011. Global talent management and global talent challenges: Strategic opportunities for IHRM. Journal of World Business, 46(4), pp. 506-516.
Wentland, D., 2003. A new practical guide for determining expatriate compensation: the comprehensive model. Compensation & Benefits Review, 35(3), pp. 45-50.
Story, J., Barbuto, J., Luthans, F. & Bovaird, J., 2014. Meeting the challenges of effective international HRM: Analysis of the antecedents of global mindset. Human Resource Management, 53(1), pp. 131-155.
Jackson, T., 2002. International HRM: A cross-cultural approach. s.l.:Sage.
Templer, K., Tay, C. & Chandrasekar, N., 2006. Motivational cultural intelligence, realistic job preview, realistic living conditions preview, and cross-cultural adjustment. Group & Organization Management, 31(1), pp. 154-173.
Huselid, M. & Becker, B., 2011. Bridging micro and macro domains: Workforce differentiation and strategic human resource management.. pp. 421-428.
Kossek, E., Lobel, S. & Brown, J., 2006. Human resource strategies to manage workforce diversity. Handbook of workplace diversity,. s.l.:s.n.
Schuler, R. S., Tarique, I. & Jackson, S. E., 2004. MANAGING HUMAN RESOURCES IN CROSS-BORDER ALLIANCES. ADVANCES IN MERGERS AND ACQUISITIONS, Volume 3, pp. 103-129.
Briscoe, D., Schuler, R. & Tarique, I., 2012. International Human Resource Management: Policies and Practices for Multinational Enterprises. s.l.:Routledge.
Assesshub, 2016. 9 challenges of human resource management and how to manage them. [Online] Available at: https://www.assesshub.com/blog/9-challenges-of-human-resource-management-and-how-to-manage-them/[Accessed 5 May 2018].
Cieri, H. D., Fenwick, M. & Hutchings, K., 2007. The challenge of international human resource management: balancing the duality of strategy and practice. The International Journal of Human Resource Management , 16(4), pp. 584-598.