Introduction
Since the advent of globalization, businesses have continuously sought new and more lucrative opportunities away from home. Such firms carry a variety of names, but they are commonly referred to as the multinationals (MNCs) or international corporations. When penetrating new nations, they employ a variety of techniques designed to ensure they succeed in their strategies. MNCs can apply ethnocentric, polycentric, or geocentric managerial techniques on their subsidiaries; though this is highly dependent on the company culture. By serving new markets, Schröter and Davoine (2009) assert that the primary objective of MNCs is to increase profitability, market share, and create a competitive advantage. Therefore, the culture of the organization is the “corporate glue” that governs its global and local interests and instrumental in attaining goals and strategic objectives. Corporations utilize different strategies to achieve their ends. In the Bartlett and Ghoshal (1989) model, businesses pursue four primary strategies to attain a competitive advantage internationally. In this study, the researcher will delve what the authors thought were the principle stages of globalization concerning their framework. The research will also analyze the international HR implications of each of the four stages.
Overview
According to Bartlett and Ghoshal (1989), four distinct multinational firms exist in the contemporary business environment as shall be discussed underneath. One of the primary goals of international firms is to attain global integration as well as global differentiation. This implies that based on their strategic outlook, the mode of managing subsidiaries may differ. According to Pablos and Tennyson (2017), companies develop strategies in their determination to achieve specific objectives; however, the choice of a strategic model should properly direct the firm towards meeting the needs of the market to secure global competitiveness. Sinha & Sinha (2008) support this view by affirming that successful MNCs start by conducting an assessment of the factors that push them towards global integration, differentiation or both. Based on the information gathered, the organization builds strategic capabilities that solve the pressures of the environment. Rugman (2002) opines that MNCs use the I-R framework (integration-responsiveness) to assess market forces to formulate a viable strategic plan. Managers will be in a position to comprehend the factors that would make the MNC more responsive and the elements that push it towards integration, for instance, the benefits of economies of scale.
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Prahalad and Doz (1987) described pressures that can affect organizational responsiveness and global integration. These are indicated in the table below:
Forces for integration |
Forces for responsiveness | |
| Strategic coordination | Operating integration | |
|
Importance of customers Importance of competitors The intensity of investment |
Economies of scale The pressure to cut down on costs Similar tastes and preferences The intensity of technology |
Differences in consumer tastes and preferences Presence of substitutes Distribution structures The demands of the host government |
Table 1 : Forces within the environment. (Source: Prahalad & Doz, 1987).
In addition to the factors mentioned above, Bartlett and Ghoshal (1994) indicated that global innovation is also a factor that should be considered. Some MNCs may willingly lever their capabilities to subsidiaries in their quest for novelty while others may find it difficult. For instance, corporations that do not require any form of innovation from subsidiaries or foreign firms will less likely be inclined to the polycentric model of management. Oftentimes, innovation will be developed in the home country and dispersed to several subsidiaries around the world. Nonetheless, MNCs that desire local novelty in order to stay competitive will most likely be inclined to autonomous decision-making in their subsidiaries. Each individual subsidiary will seek new ideas and knowledge about the market and design a product or service to meet consumer needs and demands. Prahalad and Doz (1987) and Bartlett and Ghoshal (1991) ideas of integration-responsiveness and the four stages of globalization can be combines into a diagram below:
The variables in Figure1 above are discussed in details below.
Concerning international human resource implications, Liu (2004) asserts that successful MNCs transfer HRM practices that have proven effective in parent companies to the subsidiaries. However, this is common with the ethnocentric and to a lesser extent geocentric firms. Polycentric entities value autonomy. In addition to the mode of management, subsidiaries face two options when adopting an HRM model. They may adopt local practices (adoptive) or accept practices from the parent's company (exportive). Conversely, the integrative approach of embracing HRM practices only focuses on transferring the best practices in the entire organization. It can be concluded that the MNC’s international strategy (multidomestic, global, transnational, and international), combined with the top management beliefs define the type of international HRM orientation as shall be analyzed in this study.
The Multidomestic Strategy
Figure1 above indicates that corporations, which utilize the multidomestic strategy, prefer low global integration and high local responsiveness. According to Dickmann (2000) and Bartlett and Ghoshal (1989), s uch firms focus on meeting the local needs of their customers. Goods and services are crafted in conformity with what the local consumer demands and this is done extensively, other than taking a more global or universal approach. The Multidomestic businesses either apply the polycentric or the geocentric management strategies designed to give subsidiaries globally a certain level of operational autonomy. Such corporations focus on gaining insights into the local culture and demographics before entering the market. Shah, Yusaff, Hussain, and Hussain (2012) postulate, o rganizations that utilize the multidomestic approach find it less difficult to penetrate a nation because their strategies are customized to the local culture. Furthermore, due to their extensive market research, they design a variety of techniques that could be used to counter competition in markets that share similar products and advertising methods. Although the multidometic strategy is costly to undertake, its benefits are immense in the long-run. Therefore, companies seeking to attract a broad portfolio of loyal and long-term customers should employ the multidomestic approach. Besides, Dickmann (2000) connotes that corporations utilizing this strategy enhance the motivation of the locals and this consequently boosts their competitive advantage. Their ability to satisfy the tastes and preferences of the local customers leads to improved revenues and profitability.
The International HR Implications
According to Liu (2004), a company that utilizes the multidomestic strategy hires natives and believes in autonomy; it is less likely to transfer its HRM practices to the subsidiary. Such an attempt is limited. Therefore, multidomestic firms make use of polycentric approaches to manage their workforce. In this method, the MNC hires and promotes employees of the host country. The polycentric method is less expensive, and the organization experiences fewer problems of communication and adjusting associated with foreigners. Nevertheless, the approach has its implications. Al-Khaldi, Burgess, and Connell (2016) opines managers of the host country rarely advance to the headquarters because organizations prefer having natives in senior positions. The little to lack of orientation may create conflicts between the managers of the host country and the ones at the headquarters because there is no link between the two. Second, the cultural gap between the organizational leaders at the headquarters and those in the host country can hamper effective and efficient operations. It is imperative for it to be bridged to prevent the subsidies from operating too independently. Third, there is limited space for advancement. Both the natives of the host country and those in the mother country can only advance within their countries.
Global Stage
In a global strategy, Bartlett and Ghoshal (1989) affirm that MNCs emphasize high global integration and low local responsiveness. The products and services are offered globally, and the focus remains on maximizing efficiencies and lowering costs as much as possible. Therefore, enterprises that utilize the global strategy integrate and centralize their resources, R&D, and production facilities in a bid to effectively attain the desired efficiencies and cost reductions. Sinha and Sinha (2008) indicate that subsidiaries are dependent on the headquarters and operate using similar strategies. It is important to note that firms employing the global strategy may attain the desired efficiencies and cost strategies; however, they impede flexibility and are susceptible to political and currency risks. They are also unable to learn new modes of operations and techniques from foreign corporations. Thus, while multidomestic companies are decentralized, and managers are at liberty to formulate strategies under the local market, the global approach, on the other hand, makes use of similar strategies across all markets in a systematic fashion.
Schröter and Davoine (2009) further opine that f irms that apply the global strategy harness resources at a central point and for that reason enjoy economies of scale. Furthermore, Liu (2004) purports that, businesses deploying the global strategy can switch production facilities from one country to another, which is an advantage because they have the upper hand over suppliers and the host country. They can negotiate fair contracts that could save them immense costs in the long run. The MNCs can relocate their production facilities to low-cost nations, and this means access to cheaper labor, which lowers operational costs as well. Schröter and Davoine (2009) postulate that MNCs taking the global approach is aggressive and because they have a holistic understanding of the international market, they can develop methods of countering competition on a global scale. On the flip side, besides diminished ability to learn from foreign entities, incurring revenues and costs from diverse countries increases risks.
The International HR Implications
A company that embraces the global strategy uses the “direct transfer” of HRM policies, rules and guidelines. In this case, the parent company expects the subsidiaries to abide by the established procedures. This kind of approach is founded on authority relations between the two entities, especially when there is a formal system of control with rewards and penalties. The global approach goes well with ethnocentrism ( Mahmood, 2010). Typically, the natives of the parent company fill the top positions of both the parent company and the subsidiaries. Conversely, some countries may request for expatriates from the parent company to train and develop the local talent to guide and mentor the employees of the host country in the proper and most efficient methods of managing the firm ( Shah et al ., 2012).
The global strategy has in HRM implications as well. First, the local employees are denied the opportunity to fill the top management positions because the headquarters perceive them as less competent to run the organization. However, the natives from the parent company have the nitty-gritty of running the corporation because they have been adequately trained and are experienced. The global strategy can potentially create conflicts between the expatriates and the local employees because of the cultural differences ( Liu, 2004). Furthermore, it leads to reduced levels of motivation among workers. Employees cannot rise beyond certain positions in the organization, and sometimes the top managers make decisions that negatively affect the ability of the organization to operate in the host country. Besides, some policies that apply to the parent company may face strong objection from employees in the host nation if they are designed to hurt their benefits ( Cox, 2014).
The Transnational Strategy
In this strategy, the principal focus is high integration and high responsiveness. The transnational approach combines both the multidomestic and global strategy to maximize the benefits from the local market, as well as gain a competitive advantage on a global scale ( Shah et al ., 2012). While the strategy allows for the autonomy of the subsidiary companies, it monitors each unit to ensure they provide solutions to market pressures. Corporations that use the transnational approach create subsidiaries that perform distinct roles to ensure the attainment local customer needs, organizational flexibility, and global competitiveness ( Bartlett & Ghoshal, 1989). For example, the firm may centralize R&D and production functions in specific nations around the world.
The divisions are placed in strategic locations to assist the organization in attaining economies of scale as well as decentralize decision-making across different places. The company relies on standardization to offer its commodities at competitive prices to consumers all over the world ( Shah et al ., 2012). For instance, in Sweden, IKEA’s native state, people change furniture twice or thrice in a lifetime. However, in the US, it is done only 1.5 times. The company developed a marketing strategy that made consumers change their habits while still focusing on its global strategy (Sinha & Sinha, 2008).
The International HR Implications
The transnational strategy utilizes the geocentric model of management for its international HRM. The company can have an expatriate as the CEO of the subsidiary and other host country natives as managers. In the transnational approach, the parent company indirectly transfers the corporate culture and the managerial skill to subsidiaries to improve the latter's performance. The geocentric approach uses any manager irrespective of the country of origin; so it reduces potential bias and rewards competency. However, it may have implications especially in countries that want MNCs to hire their native citizens ( Al-Khaldi, Burgess & Connell, 2016).
The International Strategy
The international strategy follows the low integration and low responsiveness strategy ( Bartlett & Ghoshal, 1989). A company that employs this approach does not need global integration or local responsiveness. A significant percentage of the value chain functions are maintained at the headquarters ( Mahmood, 2010). Sometimes called the export strategy, goods are produced in the home country and disbursed to different parts of the world. If there is a subsidiary, it will serve the function of a local channel through which the products are sold ( Cox, 2014). The international strategy may work for entities facing weak local responsiveness and cost reductions but do little to achieve global efficiencies or flexibility, such as wine companies ( Shah et al ., 2012).
The international strategy is comprised of four components namely “the distinctive competence, the resource of deployment, the scope of operations, and the synergy.” The distinctive competence is any product offering or service that the company is doing better than the competitors, for instance, low product prices, very high quality, or efficient distribution network ( Mahmood, 2010). Resource deployment emphasizes the mode of deploying resources after selecting the market. For instance, a firm that needs to open a subsidiary may pay a certain percentage and have potential investors pay the rest. The scope of operation is the direction the company is taking. For instance, it can choose to enter a specific geographical area, or low priced market ( Liu, 2004). Companies make use of the scope of operation in the areas of its competitive advantage. Synergy is when “the sum of a company’s parts is bigger than the parts by itself.” For instance, British Airways advertises products inflight to get people to browse its site for new foreign countries. The techniques get the consumer to book the flight again. One of the disadvantages of the international strategy is little to no knowledge about the needs and desires of the local market as well as the performance of the local economy ( Shah et al ., 2012).
The International HR Implications
This strategy employs the ethnocentric method. In this case, the top management directs the human resources from headquarters. The subsidiaries if any do little work and do not require the formulation of marketing strategies because the same approach developed by the top company applies to all subsidiaries. Also, the weaker competition means that such an MNC can only rely on exportation to attain its financial and marketing goals. This affects the international HRM because employees do not get a room for growth.
Conclusion
The study sought to analyze Bartlett & Ghoshal four stages of globalization and their implication on international HRM. According to the research, the four methods that corporations can use to move to international markets are the multidomestic (allows autonomy), the transnational (slightly centralized and provides autonomy), the international (centralized), and the global (highly centralized). Each strategy has its pros and cons and implications for HRM. In a multidomestic company, the managers in the host company may encounter challenges when dealing with parent company managers; however, they have a clear understanding of the market and can easily succeed. The global approach is demoralizing because of the micromanaging and the less trust that the management in the parent company has on the local talent. Furthermore, the transnational approach calls for highly competitive human resources to work in any country to accomplish the needs of the organization. The international relies heavily on the human resources at the headquarters and less on subsidiaries.
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