[Recommended] (Mt) – University Canada West Standardization vs Localization in HRM Questions

SOLUTION AT Academic Writers Bay International Journal of Business and Management; Vol. 12, No. 2; 2017 ISSN 1833-3850 E-ISSN 1833-8119 Published by Canadian Center of Science and Education International Human Resource Management Practices in Automotive Industry in Pakistan: Implications for Economic Growth Muhammad Ahmed Butt1 & Paul Katuse1 1 United States International University-Africa, Nairobi, Kenya Correspondence: Muhammad Ahmed Butt, Doctor of Business Administration (Candidate), United States International University-Africa, P.O.Box 14634-00800. Nairobi, Kenya. E-mail: [email protected] Received: December 6, 2016 doi:10.5539/ijbm.v12n2p136 Accepted: January 20, 2017 Online Published: January 26, 2017 URL: http://dx.doi.org/10.5539/ijbm.v12n2p136 Abstract The purpose of this article is to examine the drivers of global standardization and localization of International Human Resource Management (IHRM) practices internalized by Pakistan’s automotive industry leading to sustainable economic growth. The authors have studied the IHRM determinants influencing the automotive manufacturers, and have assessed its impact on sustainable economic growth. Analysis is developed on the antecedent IHRM theories and literature in the backdrop of Pakistan’s automotive industry. The study highlights the paramount aims of host-country IHRM practices viz global standardization and localization, its impact on host-country organization’s performance and resultant effect on sustainable economic growth. The article has focused, in subtle manner, on improving the explicit understanding on IHRM practices viz global standardization and localization drivers to achieve both growth for the industry and sustainable economic development of the country. The study is based on already generated literature thereby limiting the generalizability thereof, and provides a review of IHRM practices and outcomes in automobile sector in the growth context. The results have presented guidelines to researchers and practitioners doing research in human side in automotive industry providing impetus for growth, both at industry and country level. Keywords: international human resource management, global standardization, localization, sustainable growth 1. Introduction In line with the World Investment Report issued by United Nations in 2006, there are currently 77,000 transnational corporations having 770,000 foreign affiliations, gainfully employing 62 million workforces globally. This is one of the critical facets that underpin the frontiers of globalization and its businesses spheres. With this spiral hike in the scale and degree of transnational/global operations, the role of human resource management in sustaining this increase in international businesses activities is a central theme which international human resource management(IHRM) addresses(Dowling et al., 2013). Morgan (1986) presents IHRM in three dimensions and defines international HRM as the interplay among those three dimensions i.e. human resource activity, types of employees, and countries of operations. The purpose of this article remains squarely focused on examining the IHRM drivers of globalization and localization in host-country, keeping Pakistan’s automotive sector as a central case, and determining its effect on automotive industry players; its cascaded impact on manufacturing sector’s growth and Pakistan’s economic development, in macro perspective. The article presents an overview in comprehensive terms, in the form of survey and synthesis, encompassing the full spectrum of literature on international HRM, its critical determinants (i.e. globalization and localization in host-country context), its implications for automotive industry, and sustainable economic growth of the host country, an enormous activity that has consumed considerable effort, enough to generate several review papers. Nevertheless the key objective of this study is to deliberate and discuss the components of IHRM practices in host-country in the context of both automotive sector, and economic growth of Pakistan. 2. International HRM Consistent with the thoughts of scholars, the importance of human resources is explicit and acknowledged; linking it with organizational output and economic indicators of Gross Domestic Product (GDP) provided impetus to augment IHRM research (Sparrow& Marchington, 1998; Legge, 2004). One of the ways to create 136 ijbm.ccsenet.org International Journal of Business and Management Vol. 12, No. 2; 2017 distinction among IHRM academics is to make a group of those researchers undertaking studies in HRM processes in global firms, and not placing emphasis on social and cultural issues as against the other set of academics, stressing on broader perspective inclusive of social and cultural components (Beardwell & Holden, 2001). The former group sought to give due consideration to the role of international manager, and global HR systems (Scullion, H. 2001). The latter group is diverse in nature and captured the context of comparative facets especially international and comparative employment and industrial relations systems (Brewster et al., 2004; Edwards & Almond 2005). IHRM studies are concerned with HR issues on global canvas that are ‘unfolding’ with the ‘various stages of the internationalization process’ (Boxall, 1995). When Boxall (1995) made this statement, IHRM research and scholarship were at its early stage of growth. From that point onwards, the discipline of IHRM transformed itself to an area of importance for academic expertise. 2.1 Theory of IHRM One area of academic work, focused by human resource management (HRM) scholars, is making efforts to uncover HRM best practices approach linked with specific human resource (HR) strategic interventions regardless of societal and industrial sectors’ contexts (Sparrow& Marchington, 1998; Legge, 2004). Whilst there is explicit evidence that HR practices can yield higher productivity and augment organizational performance (Huselid, 1995; Kiessling & Harvey, 2005), HRM may be an universalistic strategy, and in mid-1990s, this point of reasoning appeared to influence much international business thinking (Boxall, 1995). HRM seems to be more of a theoretical construct than an applied reality (Pieper1990, Legge, 2004). The diagnosing of the rhetoric vis-à-vis the reality of HRM emerged as a field of investigation (Rees et al., 2005). However, evidence suggests that globalization is effecting a universalistic approach (Marquardt &Berger, 2003).The performance model has influenced IHRM theorizing and it has communicated an issue for greater societal well-being (Boxall, 1995; Sparrow & Marchington, 1998).The international HRM (IHRM) literature has traditionally focused on multinational corporations (MNCs) as a ‘head-office’ driven entity, and constructs choices as a function of environmental issues for analysis and strategic interpretation by central MNCs executives (Ngo et al., 1998). 2.2 Theoretical Perspective of Standardization and Localization Possessing prior internationalization experience; such as the partners who have worked through and practiced their HRM approaches in other environments, have both, a basis for expecting successful implementation of standardized, isomorphic HR practices, and a negotiation history to support it, consistent with expectations at an individual level (Carpenter et al., 2001). This is akin to Lambe et al., (2002) articulation of ‘alliance competence’; embedding of HRM practices in production systems (Meardi, 2004; Kubo & Saka, 2002), thus requiring operational consistency among practices in order to guarantee operational effectiveness and efficiency, and full utilization of the transfer of technology and expertise (Kostova & Zaheer, 1999) Competing demands of global integration and local differentiation have highlighted the need to develop human resources as a source of competitive advantage (Caligiuri &Stroh 1995; Sehuler et at., 1993; Taylor et al., 1996), MNCs standardization and local practices. In the context of international business, a number of scholars have pointed to the choice that MNCs typically must make between either standardizing their policies and practices across global settings or adopting local practices (Prahalad & Doz, 1987). Rosenzweig & Nohria (1994) noted that when an HRM practitioner adhered to local practices (the US), the achievement was at ‘the expense of similarity to parent country practices’, and this ‘expense’ varied across different HRM practices. As MNCs and their international subsidiaries have become increasingly important players in the global economy, interest in, and research on the strategies and management practices of these firms have advanced apace. Within this literature, one significant line of enquiry relates to the capacity of the MNCs to achieve international integration in its policies and practices (Kim et al., 2003). As Smale et al., (2013) note “what is lacking, however, is systematic research that combines multiple mechanisms of global HRM integration and explanations behind their reportedly differential usage”. Smale et al., (2013) work constitutes a calling to undertake a specific examination of how different integration mechanisms are used across a range of HRM practices encompassing employee reward, development and relations. Building on Kim et al., (2003) four way classification of modes of integration (centralization, formalization, information and people based), and responding to the call by Smale et al., (2013) an analysis develops of the differentiated use of these integration modes across a suite of different HRM practices (pay and rewards, performance appraisal systems, training and development, employee involvement and industrial relations). The debate on international integration and local adaptation of practices has attracted considerable attention, particularly in recent years (Gunnigle et al., 2002; Pudelko, M. 2006; Almond & Ferner, 2006; Ferner et al., 2011; 137 ijbm.ccseneet.org Internnational Journall of Business andd Management Vol. 12, No. 2; 2017 Mayrhoferr et al., 2011; Bélanger B et al., 2013; Smalee et al., 2013). According to Smale et al., (22013) MNCs make m efforts to ccontrol the HR RM policies annd practices off their subsidiaaries. And do try to ensure ccoordination of o the policies annd practices across a their suubsidiaries. C Cray (1984) poostulated that international integration oc ccurs through tw wo distinct proocesses, namelyy, control and coordination. Control and ccoordination arre therefore seen as the two prrimary undertaakings of globaal integration ((Cray, 1984; M Martinez & Jarrillo, 1991; Kiim et al., 2003). As Kim et al.,, (2003) note, “global integraation becomess possible onlyy through the uuse of organizaational mechan nisms for coordinnation and conntrol”. 3. Global Standardization and Locallization w and Dowling eet al., (2013) apptly stated thaat effective multinational mannagers do requuire to be sensitive, to follow adapt to thhe host-countryy requirementt and systems rrelating to HR R practices andd accord respeect to local culltures and host-ccountry situatioons; and that m mismatch resuults in dysfuncttion effect on both the parennt company as well as the subbsidiaries in foreign f locatioons. Corporatee strategy, goals and objecctives are proppelled by stra ategic resources oorientation of the organization. As Harzinng (1999) affirm ms; there existts a continuum m of advantage es for both standdardization andd localization. F Figure 1 depiccts the factors oof global standdardization andd localization. Figure 1. Thee factors of gloobal standardizzation and locaalization Source: Festiing, M., Eidems, J. J & Royer, S. (20007). minants Drivinng Standardizaation 3.1 Determ Festing et al., (2007) prresented a moddel of standarddization and loocalization of human resourrce manageme ent in multinational corporatioons (MNCs). D Determinants of global stanndardization arre; (1) strategiic issues inclu uding corporate strategy. Tayllor; Beehler, aand Napier (11996) argued that there is reciprocal rellationship betw ween organizatioonal factors, strategic s HRM M, and MNCss’ goals and sstrategy. Structture of the orrganization an nd its impact onn HRM(Nohriaa & Ghosal,19997) focuses oon the capabillity of networrking structuree of subsidiaries to package ((slack resources) to stimulaate ‘local-for–local’ ‘local-ffor-global ‘annd ‘global-for–global’ innovation process; (22) consideratioon for corporatte culture regarrds HRM activvities as imporrtant culture iddentity (Alvesson & Berg, 1992). Some globbal firms havee become morre systematic in their effortts to achieve control by wa ay of shared corrporate culturee; these effortss have becomee central pointt in IHRM straategy (Dowlinng et al., 2013)).The point (3) iis firm’s size and maturity in degree of international experience (M Myloni, Harzinng & Mirza 2007). These facttors are dependent upon eacch other. In praactice, neverthheless, perfect adherence to these factors in i all Multinatioonal Enterprisees (MNEs) is nnot observed (D Dowling et al.,, 2013). 3.2 Determ minants Drivinng Localizationn The (1) fa factor compellling localizatioon is culturall environmentt of the host-country. Sparrrow et al., (2 2004) identified cultural influuence on rewaard behavior such as in thhe manager-suubordinate relaationship, diffferent 138 ijbm.ccseneet.org Internnational Journall of Business andd Management Vol. 12, No. 2; 2017 expectations of the two and a their influence on perforrmance managgement and mootivation proceess. Hofstede (1980) studies haave made impportant contriibution toward the body oof knowledgee in understannding the culltural differencess in organizatiional context. The (2) driverr for localizatioon is host-couuntry institutionns and their se etting which shappes the behaviior and expectaation in subsiddiaries (Scott, 1995). Instituttional norms m may be based on the features off a national buusiness system m i.e. educationnal system or tthe industrial rrelations systeem (Whitley 1992). Khilji (20002) rightly asserted a that although foreeign multinatiional in Pakiistan have foormulated policies, implementtation is low, because manaagers brought up and traineed in hierarchiical and centraalized set-up resist r sharing poower and involving employeees in decision–making. This occurred despiite the host-country’s expecttation that MNC Cs would transfer their bestt practices. K Khilji (2002) ppointed out inn the study annd has observ ved a polycentricc approach inn host-countryy nations (HC CNs) in the kkey position iincluding thatt of HR Man nager. Sometime reverse diffusion i.e. transfer of practicees from foreiggn locations too headquarterss can be witne essed (Edwards et al., 2005). This T facet of reeverse diffusionn is captured iin Figure 2. F Figure 2. The fa facet of reversee diffusion Source: Dow wling, P., Marrion, F. & Engle, A. (2013). o operation abbroad. A study by Buckley ett al., (2003) preesented two exxamples of how w the The (3) driiver is mode of mode of ooperation eitheer inhibits or ffacilitates workk standardizattion. China government in laate 1978 prom moted open doorr policy and efforts e were m made for transsition from ceentrally planneed to market economy. We estern organizatioons that entereed in the beginnning were by aand large forceed to enter intoo joint venturees with state-ow wned enterprisess (SOEs), whhereas those eentering late hhad the choice to be whollly owned subbsidiaries (WO OSs). Ownershipp and control are therefore important facctors that needd to be taken into considerration when MNCs M attempt too standardize work and HR RM practices; firm’s abilityy to independdently implem ment processess and proceduress is naturally higher h in WOE Es whilst the quuestion of conttrol in Internattional Joint Veenture(IJV) rem mains a concern for multinatioonal firms(Dow wling et al.,20013). The (4) determinant oof localization is subsidiary role. Gupta &G Govindarajan (1991) ( provideed generic subbsidiary roles, namely globaal innovators, integrated pla ayers, implementters, and local innovators. M Mikhailovich & Husted (20033) used the terrms ‘knowledgge-sharing hosttility’ and ‘know wledge hoarding’ non-sharring behavior identified inn their study of firms opeerating in Ru ussia. Birkinshaw w & Riddersttrale (1999) ddefined the strructural poweer and resourcces based pow wer of subsidiiaries vis-à-vis thhe corporate headquarters ass two basic souurces of influennce within netw works and disttinguished betw ween ‘core’ subssidiaries and ‘pperipheral’ subbsidiaries. This discussion hhas portrayed thhe fact that thee role of subsidiary and transfeer of knowledgge may influennce the balancee of standardizzation and locaalization (Dow wling et al., 201 13) 4. Econom mic Effect Economic growth is onee of the most im mportant notioons in the global economy. D Despite the critticism that the level and rate off growth does not always refflect the real leevel of a popullation’s living standards, it reemains the primary measure oof prosperity (Pietak, ( 2014).. Sen (1999) aaptly describees economic ggrowth as deteerminant mean ns for enhancing the substantiive freedoms that are valueed by people. These freedooms are imporrtantly linked with improvem ments in living standards, i.e. more opportuunities for maasses, to eat w well, be healthiier and live longer. Pakistan’s economy refleects consistentt improvementt, Gross Domeestic Product (G GDP) growth w was documentted at 4.24 perceent in 2014-15 vis-à-vis the ggrowth of 4.033 percent in thee previous yearr. The targetedd growth rate of o 5.1 139 ijbm.ccsenet.org International Journal of Business and Management Vol. 12, No. 2; 2017 percent could not be realized due to various constraints both exogenous and endogenous. The government designed economic policies aimed at augmenting the holistic business climate and organizational support, and planned conducive strategic moves to create an environment to capitalize on resources and optimize the potential of the economy. Manufacturing is the major driver of industrial sector’s growth. This sector has 65.4 percent meaningful impetus in the overall industrial sector. In terms of GDP, its impact is 13.3 percent. Automotive sector documented 17.02 percent growth in 2015 as against 0.35 percent in 2014 (Ministry of Finance, Pakistan,2015).To capture the economic strength the per capita income indicator is critical to help determine the state of economic development of the country. The per capita income in dollar terms increased from $ 1,384 in 2013-14 to $ 1,512 in 2014-15 (Ministry of Finance, Pakistan, 2015). 4.1 Automotive Industry Automotive manufacturing industry players have internalized various approaches of work management over the years; from the Fordist method in which the workforce performed manual work in terms of continuous assembly-line jobs (Lewchuk & Robertson, 1997; Dohse et al., 1985), to internalizing of Japanese models, stressing workers engagement and substantial intellectual impetus (Klein, 1991; Dohse et al., 1985). The focus on increased productivity and competitiveness is one feature that the adopters have unmistakably shared. In 2015, Pakistan’s automotive industry documented contribution of 17.02 percent toward the manufacturing sector, producing around 822 thousand units; by 2019 the number of forecasted units will increase to 1,329 thousands (Engineering Development Board, Government of Pakistan, 2016). In terms of market value, it is estimated to reach $2.9 billion by 2019. And substantial employment is generated directly and indirectly in this sector (around 1.5 million).This phenomenon has reasonable impact on the economy of the Pakistan. The industry has backward and forward linkages responsible to create economic activity and generate employment in downstream industries. Greater emphasis has been placed by governing bodies, industry players and researchers on the technical side and on fostering the automotive sector’s growth through technological improvements and managing this industry (Ministry of Industries & Production, 2016). Ironically, there is very little research or academic work seen in the literature regarding human side particularly from the perspective of IHRM practices in automotive industry of Pakistan. 5. Discussion Globalization has brought in its wake significant extrinsic and mammoth intrinsic changes for transnational corporations with significant impact on all the facets of organization’s working inclusive of the fact that around 62 million people are productively linked with transnational organizations worldwide (United Nations report, 2006). With growing significance of global economic integration and increased share of multinational firms in global economy, IHRM has gained center stage, in particular, dealing with human side of the organization in the global work management operations across various regions, and countries of the world to realize leading competitive edge (Dowling et al., 2013). Whereas Morgan (1986) noted that IHRM has three critical dimensions, namely; human resource activity, types of employees, and countries of operations. Dowling et al., (2013) maintained the argument that the underlying factor to be borne in mind is that diversity as managed within single nation context may not necessarily transfer to multinational context without some modification. Scholars like (Sparrow et al.,2004; Legge, 2004) have validated this point that giving adequate importance to human resources in the organizations results in increased productivity and creates domino effect on national domestic product (GDP) of the country. Boxall (1995) reiterated that IHRM studies are focused on HR facets in the global perspective and that unfold consistent with various phases of the internationalization process. This argument of (Boxall, 1995) served as catalyst in the evolution of IHRM discipline from its embryonic stage to an era of importance for research scholars and academic experts. Different scholars advocated different points of view with varied significance. For instance, for Pieper (1990) and Legge (2004) human resource management seems to be more of a theoretical construct than an applied reality. The examining of the rhetoric vis-à-vis the reality of HRM emerged as a field of investigation (Rees et al., 2005). Nevertheless, evidence captures the fact that globalization is effecting a universalistic approach (Marquardt &Berger, 2003). Multinational organizations are faced with dilemma; whether to opt for global standardizations or localization. The competing and strategic demands of global integration and local differentiation have highlighted the need to develop human resources as a source of competitive advantage (Caligiuri & Stroll, 1995; Sehuler et at., 1993). Regarding production operations of MNCs in the global arena, embedding of HRM practices in production systems (Meardi, 2004; Kuba & Saka, 2002), full utilization of the transfer of technology and expertise, guaranteed effectiveness in the organization (Kostova & Zaheer, 1999). Effective multinational management 140 ijbm.ccsenet.org International Journal of Business and Management Vol. 12, No. 2; 2017 requires to be sensitive to follow and adapt to the host-country’s local cultures and institutions (Dowling et al., 2013); mismatch results in dysfunction effect both on parent country and foreign locations. To support this argument, Harzing (1999) mentions that there exists a continuum of advantages for both standardization and localization for MNCs. Determinants of global standardization, according to Festing et al., (2007) are; firstly, strategic issues including corporate strategy, secondly consideration for corporate culture regards HRM activities as important cultural identity (Alvesson & Berg 1992), thirdly, size of the firm and maturity in terms of international experience (Myloni, Harzing & Mirza 2007 ). These drivers of global standardization are interdependent and their interplay is imperative. In reality, nonetheless, perfect adherence to these factors in all MNEs is not observed (Dowling et al., 2013). From among the compelling drivers of localization, first is cultural environment of the host-country (Sparrow et al., 2004). Hofstede (1980) studies have made important contribution toward knowledge in understanding the cultural differences in organizational context. The second driver concerning localization is that of host-country institutions which shape the behavior and expectation in subsidiaries (Scott, 1995). The third and fourth factors of localization include mode of operation abroad, and subsidiary role. Khilji (2002) aptly observed that although foreign multinationals in Pakistan have formulated policies, implementation is low; reason being that managers brought up and trained in hierarchical and centralized set-up resist sharing power and involving employees in decision-making. Dowling et al., (2013) believe that the role of subsidiary and transfer of knowledge may influence the balance of standardization and localization. In global economy, the notion of economic growth is of paramount importance. Notwithstanding the critique that rate of growth does not always capture the real level of a population’s living standards, it remains the primary determinant of prosperity (Pietak, 2014). Pakistan’s economy reflects consistent improvement; GDP growth was documented at 4.24 percent in 2014-15. The per capita income in dollar terms has documented at $ 1,512 in 2014-15 which is higher by US$ 129 than the previous year (Ministry of Finance, Pakistan). Manufacturing is the focal driver for industrial sector’s growth. Automotive manufacturers have internalized various approaches of work management over the years. In Fordist method the workforce primarily had manual tasks in terms of repetitive assembly-line Jobs (Lewchuk & Robertson, 1997, Dohse et al., 1985).With the advent of Japanese auto manufacturers, business model gradually underwent change and new technologies and practices were adopted. The sector has grown and is significantly contributing toward employment generation, industrial growth and economic development of the country. In 2015, Pakistan’s automotive sector documented contribution of 17.02 percent to the manufacturing sector, producing around 822 thousand units. In terms of market value it is estimated to reach $2.9 billion by 2019. Around 1.5 million workforce is gainfully employed in automotive industry. Impetus provided by this sector to the economy of the Pakistan cannot be overemphasized. Ministry of Industries & Production, Pakistan has its focus on fostering the industry from technical and operationalization context, however developing the literature regarding human side of IHRM practices in automotive industry in Pakistan has been undermined. 6. Conclusion The global multinational corporations have to resolve the idiosyncrasies underpinning the strategic move to standardize globally or to proceed with localization of IHRM practices in a country like Pakistan. Khilji (2002) study established the fact that polycentric orientation seems ostensible in multinational corporations having operations in the country and automotive industry is no exception. Challenges confronted by foreign-based organizations in host-country like Pakistan to establish global standardization in IHRM is inhibited by strong gravitation of localization factors. There is dearth of literature and studies having underlying themes related to human side of work management in the key automotive industry in Pakistan. Considering the views of Dowling et al., (2013) the role of subsidiary and transfer of knowledge may influence the balance of standardization and localization. The theories of Smale et al., (2013) regarding the attempt by MNCs to control the human resource management policies, practices and establish effective coordination of the policies and practices across their subsidiaries. Cray (1984) postulation that international integration occurs through two distinct processes, namely, control and coordination, may also by tested through empirical research. To realize the true potential of automotive sector in the current theme of inclusive globalization, there is need to focus on systematic examination of IHRM practices surrounding automotive industry in the country; future research might provide invaluable theories and models, and validate the argument of (Sparrow et al., 2004; Legge, 2004) pointing that giving adequate importance to human resources in the organizations results in increased productivity and have a positive influence on the GDP of the country. 141 ijbm.ccsenet.org International Journal of Business and Management Vol. 12, No. 2; 2017 References Almond, F., & Ferner, A. (2006). American Multinationals in Europe: Managing Employment Relations across National Borders. Oxford University Press, Oxford. Alvesson, M., & Berg, P. (1992). Corporate Culture and Organizational Symbolism. (Berlin: Walter De Gruyter). Beardwell, I., & Holden, L. (2001). Human Resource Management (3rd ed.). Pearson Education Limited. 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