Communication and Strategy of HRD in Multinational Enterprises

Sewon Kim Texas A&M University

As industry develops rapidly, barriers of geographies, ethnics, and cultures are broken and requirement of internationalization is getting escalating. This increasing crosscultural contact of inter-persons, inter-organizations, and inter-nations leads globalization to be getting important in the economic, political, and social arenas (Adler, 1983). In the business field, many large organizations started to shop the world for labor and technological resources, markets, and business partners through the mechanism of a multinational enterprise (MNE), defined as a large business organization whose operations extend across international boundaries, regarding ownership, management, strategy, structure, and so on (Teece, 1976). Because in MNEs, headquarters (HQ) and subsidiaries are physically very dispersed in environmental settings, such as different geographical locations, languages, laws, and other cultural norms, the successful international transfer of technology between countries become a critical factor for success of MNEs (Reynolds, 1990). Moreover, the role of human resource development (HRD), which includes training and development, organization development, and career development to improve individual, group, and organizational effectiveness is becoming significant in international technology transfer in MNEs (Heraty et al, 2001).

Keywords: MNE, communication, strategy, international learning

Research Problem As MNEs have become increasingly important in the business field, interests, players, and researches to seek models, frameworks, and solutions on the strategies and management of MNEs are also growing (Taylor, 1996). Rosenzweig and Nohria (1994) stressued that one of the key questions in MNEs is how HQ and its oversea subsidiaries act and behave as a parent and local firms in the process of transferring and adopting technology: product, process, and management (Osman, 1999). They argued that, increasingly, HRD practice plays the critical role as an organizational mechanism to support the technology training and development of individuals in MNEs.

In the global business, it is a challenge for HRD professionals to derive synergy from a set of activities performed by individuals, who have diverse backgrounds in geographical dispersion and multiculturalism, especially, who speak different languages. Marschan et al. (1997) acclaimed the need to research the issue of communication in terms of the strategic management of MNEs. Effective communication is a crucial factor for successful technology transfer as well as sustaining competitive advantage in MNEs. However, HRD academic professionals rarely discuss the strategic management of HRD in MNEs, even when others pay a great deal of attentions to the importance of local considerations in general management of international business (Osman, 1999). In addition, though some conducted their researches in economic, financial, and technical aspects, a scarcity of literature describing the impact of the cross-communication exists in MNEs (Andersen and Foss, 2005).

Purpose and Scope of the Study The purpose of this research is to identify issues and trends which are related to Strategic management and Communication of HRD in MNEs. The scope brings out three main points which are issues and theories of communication in international business, including MNEs, current trends of management and human resources theories in MNEs, and HRD mechanism for technology transfer among HQ and subsidiaries in MNEs.

Research Methodology The data were collected through document analysis. In-depth trend researches of several theories and practices, including cases studies, were conducted from articles of Journals and books. According to Davis and Smith (2001), researchers improve in comprehensions of present practices or issues from studying past documents. These documents can be accessed at a time that is convenient to the researcher and saves time and expense in transcribing. Review of Literature and Shaping Theoretical Frameworks As the area of HRD is expanded in international business, HRD is connected with the crosscommunicational and strategic need of MNEs. To identify and develop a theoretical frame of strategic international HRD systems in the communication aspect, this paper builds on

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previous works in cross-communication, strategic international human resources, training and development system for international technology transfer in MNEs.

Cross-Communication One time, some scholars have paid attentions for the development of a common language in MNEs. Marschan et al. (1997) identified four characteristics: linguistic assimilation, linguistic pluralism, vernacularization, and internationalism, for a standard language policy in international business. However, because the standard language in international business could not only limit diverse employees’ training and experiences, but also require a great mount of time, cost, and effort, to catch up ongoing change of the modern industry society, the research for the development of a standard language has not been satisfactorily tried in the strategic management literature, nor in the communications literature (Dhir, 2002). In present, almost all enterprises in MNEs use different languages for their business administration, except partial use of international English. According to Cheng et al. (2001), communication in alliance with multiple international enterprises (MIEs) means the transmission of information, such as ideas, knowledge, processed data, and specific technology from one enterprise to another via the use of shared symbols and media. In a HRD area, these shared media can be regarded as organization development and training methods. Because an alliance with MIEs aims to maximize the benefits of them through the exchange of shared information and experiences in geographical dispersion and cultural differences, the characteristic of communication has many similarities with MNEs’ as well as is considered one of the most important factors for their success. In the process of vertical communication, only 20% information from the top management can reach to employees on the site floor, due to information overload, lack of openness, and filtering (Bateman and Snell, 1999). In MIEs, because of distance, which has three characteristics: speed for the transmitting information, complexity of information, and the quality of the communication channels (Line, 1997), the more loss of information is expected on the process of vertical communication. Cheng et al. (2001) argued that to increase effective management of communication MIEs in an alliance, they need to create a web of open communication system that has two way communications between each two enterprises. They maintain that to enhance communication flow between MIEs, enterprises should use different communication channels, such as workshop, teleconference, email, and so on. The four factors for the choice of communication channels are next. 1) The needed amount of information: Each channel delivers different amount of information. A face to face communication, which has eye contact, facial expressions, and gestures, is the best medium to convey rich information.

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2) The needed degree of instant information: As instant or emergency information is sent, the priority for choice of channel is its immediate accessibility to information. For example, a fax or telephone is the most appropriate medium to get instant information. 3) The needed degree of effective communication: Effective communication is decided by accuracy of transmitting information. For example, the face to face and two way communications diminishing misreading, misunderstanding, and misinterpretation of information are examples of the excellent media for effective communication. 4) The needed degree of efficient communication: The speed of transmission is the determinant of efficient communication. A verbal word in the face to face communication and telephone in the distant communication are the most suitable way to increase efficiency of communication. The choice of media cannot be simply decided by one or two criteria. To stimulate effective communication in MIEs, enterprises should operate different communication channels, even considering multiple channels. Often they, at one time, need to use workshops and meetings to facilitate face-to-face communication and to use information technology (IT), such as emails and teleconferences to improve remote communication. Moreover, as Boisot (1998) recommended, to shorten MIEs’ distance and share a correct information in MIEs, each enterprise should own the appropriate operating system and the ability to utilize communication media. Institutional Theory Recent years, human resources scholars have been seeking to explain the construction of MNEs from an institutional theory perspective. The central idea of institutional theory is that enterprises are shaped by the institutional environment, and tend to copy business systems, which are done elsewhere to obtain authority (Strauss and Hanson, 1997). They maintain that the most fundamental issue in MNEs is to find the best fit point between two counteracting logics of HQ’s overall strategic management on internal consistency of globalization and subsidiaries’ unique management on local responsiveness of localization, rather than to find the fixed solution for effective management of MNEs. In deductive, the HRD activity in MNEs also needs to be set in the best fit between globalization and localization as one of institutional factors. Globalization of the HRD activity can be explained as a function at the international context of the macro nature and localization of the HRD activity can be described as a function at the local context of the micro nature. In conclusion, if the HQ and subsidiaries are similar in institutional characteristic, it is much easier to find the best fit for the successful HRD activity in MNEs. Resource-based Theory

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Enterprises have to possess resources as their competencies that are critical for achieving their success in a global environment (Pucik, 1992). To generate competitive advantage, resources must be valuable, rare, inimitable, and non-substitutable (Barney, 1991). Applying this resource-based theory to the HR area, many scholars emphasize HR systems as one of competencies in MNEs. Schuler et al. (1993) identified HR competence as the tangible resources including selection, location, compensation and training and development systems and intangible resources containing motivation, negotiation, and leadership abilities. They described resources, including HR at the next three levels in MNEs. First, the resources of enterprises originate from a particular combination of economic, cultural, and social elements at the national level. Second, the resources of enterprises are developed as a set of the distinctive assets over their lifetime at the firm or HQ level. Finally, the resources of enterprises are appropriately modified to local environment in the subsidiary level. Strategic International Human Resources Strategic international human resource management (SIHRM) is drawn from the institutional view and the resource-based view of the firm (Taylor, 1996). And this is basically a combination of both International human resources (HR) and Strategic HR in MNEs. According to Schuler et al. work (1993), SIHRM is defined as “human resource management issues, functions, and policies and practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of those enterprises." Here, regarding the statue of HRD, the author will use the term, SIHR, instead of the SIHRM, to clarify and broaden its meaning. SIHR model is used explicitly to examine the system at three levels: the HQ company, the subsidiaries, and subsidiaries employee groups within the MNEs and there are three generic SIHR orientations branched out: adaptive, exportive, and integrative orientations (Taylor, 1996). 1) Adaptive SIHR orientation: The HQ of the MNEs attempts to create HR systems for subsidiaries that reflect the local environment. In this case, differentiation is emphasized so there is almost no transfer of HR philosophy, policies, or practices either from the HQ to its subsidiaries or between overseas subsidiaries. 2) Exprotive SIHR orientation: The HQ of the MNEs prefers a wholesale transfer of the parent firm's HR system to its subsidiary, replicating in its overseas subsidiaries of the HR policies and practices used by the HQ in MNEs. It is an export of all HQ’s HR systems to the subsidiary. 3) Integrative SIHR orientation: Attempts to take both characteristics of the HQ’s HR system with its subsidiary and use them throughout the organization in the creation of a worldwide system, which focuses on substantial global integration with an allowance for 5

some local differentiation. This orientation can be linked with globalization and localization of the previous institutional theory mentioned earlier. Both of these theories aim for the best fit approaches for a greatly effective management of MNEs. Firstly, in the HQ level, there are a few factors that influence the choices of SIHR in MNEs (Taylor, 1996). SIHR orientations are determined by strategy direction of the HQ, which affects how resource transactions are structured among various subsidiaries, and this could lead to evolution of HQ strategy, which generalization of its HR competence could change according to MNE's overseas experience or top management turnover. Thirdly, top management perception of HR defines beliefs, expressed in corporate as well as personal communications and finally, national origin could determine SIHR orientations since cultural beliefs that are prominent in a country influence the values, beliefs, and hence decisions of top management. Secondly, in the subsidiary level, the degree of similarity between the HQ and subsidiary HR systems is influenced by three other factors that constrain the exercise of the control of the HQ: method of subsidiary establishment and the cultural and legal distances of the subsidiary from the HQ. Finally, the subsidiaries’ HR systems are affected by the host country's environment (Rosenzweig and Nohria, 1994). This includes the legal environment based on labor issues, as well as the cultural environment. These two variables both influence the degree to which the MNEs are able to transfer its HQ HR system overseas to achieve internal consistency. Lastly, the subsidiary employ group's level focuses on the HR system that is applied to particular groups of employees within a subsidiary. Just as MNEs are more or less dependent on a particular subsidiary, at the individual level, particular employees may own excellent skills and knowledge that are more or less important to the functioning of their home enterprise of subsidiary and to the whole MNEs (Taylor, 1996). However, some groups will be more critical to the implementation of a subsidiary's strategic role and to the MNE's competitiveness since all groups are not created equally (Rosenzweig and Nohria, 1994). In conclusion, for all of these levels, the resource-dependence and institutional theory perspective are used to analyze the forces that shape how HQ, subsidiary, and particular employ groups are managed. In MNEs, the SIHR system represents an important control mechanism that can ensure subsidiaries’ employees action in the best interests of the HQ, because selection, location, compensation, and training and development can be used to direct and control individual behavior. International Technology Transfer International technology transfer is one of the most significant areas of SIHR in MNEs. These particular schemes are developed in skills through effective HRD systems in product, process, and management development (Buswick, 1990). To succeed in this task, HRD 6

professionals should be able to adapt the best training and development system of the home approach and then adopt the best of the host approach so that the HRD activities are effective and approved in the complex MNEs’ learning environment. Generally, technology transfer is explained on two main levels; vertical transfer and horizontal transfer (Bradbury, 1978). Vertical transfer is the general internal function to MNEs and it is taken action by the enterprise of new knowledge from its initial idea stage to its final development stage. On the other hand, the other level, horizontal transfer, transfers proven or tested technology from an enterprise and adopts, modify or apply in another enterprises. In MNEs, mostly technology is transferred on the horizontal level from developed enterprises to underdeveloped enterprises. On the horizontal level, there are three types of transfer of training programs to build a model of international technology transfer system that can prevail in MNEs: material, design and capacity transfer (Teece, 1976). Basically, these means the direct transfer of the HQ’s training programs toward subsidiaries as a material, the modified transfer of them for specified local needs as a special design, and the whole transfer of knowledge and capacity that subsidiaries can develop the training systems by themselves. According to Marquardt and Engel (1993) and Osman-Gani (2000), for successful international technology transfer, the next elements should be considered, before an original training program is modified. They are: trainee selection, determining program and trainee needs, setting objectives, choosing appropriate methodology for technology transfer, language consideration, training preparation, training evaluation, and follow-up. And, Osman-Gani (1999) suggests an ideal procedure of modifying training programs to find the best fit. The procedures are composed of needs assessment, modification, and the follow-up modification. The needs assessment is usually measured by actual surveys, observations, and interviews with the target population of the training programs. Though the most time and efforts are required at the first modification stage, after a certain period time the revision of the initial modification is still needed for reflecting the inappropriateness of the initial modification and new business standards at the follow-up modification stage. This modification is mainly conducted by house HRD professionals in subsidiaries (Osman, 1999). Though they are best acquainted to organizational culture as well as national characteristic, sometimes internal or external subject experts are consulted for modification of specific training programs. In addition, the modifiers would modify materials of training programs or create a terminology section in a training manual, to improve trainers and trainees’ understanding of cultural differences, complicated concepts, or jargons (Osman, 1999). Finally, the house HRD professionals’ personal perception and experience of past modifications play the crucial role in the overall three processes (Hansen and Brooks, 1994). When original training programs from the HQ are not sufficient, they might develop other training programs that were necessary to satisfy the subsidiary’s needs. However, under the 7

procedure of transferring technology, which is mandated by the HQ or top management decision, the training and development systems the subsidiaries are still greatly influenced by the global business strategy of MNEs. Expatriates Bartlett and Ghoshal (1989) argued that technology can be transferred through the exchange personnel, expatriates, accountable for its development in MNEs. This cross-organizational learning activity happens in two ways: sending HQ expertise toward subsidiaries to transfer advanced technology and sending local staffs toward HQ to learn new or advanced technology for a while (Nigel, 2002). Here, the author will focus on the later way of sending expatriates from HQ to subsidiaries. Sharing experiences of advanced technology, expatriates from HQ can help the subsidiaries in the new technology environment learn the advanced technology and achieve the competitive advantage. Beside, though many expatriates fail to conduct their jobs successfully, not so many enterprises have a fine expatriate system in SHIR (Osman, 1999). According to Osman (1999), the essential aspects of the expatriate system are selection, location, training and development of expatriates and development of the HQ personnel responsible for managing subsidiaries operations. Peters (1987) suggested some characteristics for the selection process of expatriates: expertise, credibility, planning skills, networking skills, sensitivity, objectivity, tenacious decisiveness, and confidence. Few things are highly recommended for effective selection choices. Firstly, it is important to have HRD professionals trained in international issues and let them supervise the selection process from the beginning. Also, including the family of expatriate in the selection process is something to carefully consider and finally, HRD professionals should notice the ability of expatriates in how to deal with alienation and isolation, tolerance for ambiguity, and open-mindedness. Bonache and Cervino (1997) emphasized how expatriates from the HQ are used to fill senior management positions in subsidiaries. In a case study of Chinese MNEs in England (Zhang, 2003), three location ways were found. One is a conservative model which HQ expatriates govern subsidiaries at all management level and another is a mixed model of both HQ expatriates and subsidiaries personnel at the middle management level, except top management. The last model is an increasing the proportions of local employees of the subsidiaries at the top and middle management level. According to Zhang (2003), the mixed use of the HQ’ expatriates and subsidiaries’ personnel in the management level not only promotes the influence of HQ but also facilitates the utilization of local practices. Finally, Tung (1982) and Osman (1999) suggested several major types of training programs for expatriates including their families. They are as follows: surrounding briefings to provide environmental information such as geography, climate, and housing; cultural orientation to familiarize with cultural value systems of the host country; sensitivity training 8

to develop attitudinal flexibility; field experience for expatriates to undergo some of the emotional stress of living and working in the host country; language training to help them communicate with people of the host country. Finally, this useful information for expatriates are delivered via pre-departure in most, during, and post-departure trainings in a period of one to four weeks (Williams & Bent, 1996).

Discussion and Recommendations This study purposed to research trends of two important issues of cross-communication in the strategic management of MNEs and the strategic management of HRD in MNEs. Linking these two was tried upon several significant findings of recent researches that related to crosscommunication, institution, resource-based, SIHR, international technology transfer, expatriates theories in communication, business, HRD & M, and sociology areas. Though there are still more theoretical and empirical researches not to be known to me, this study helped put a fundamental step forward navigating HRD on the strategic as well as communication aspect in international wide. The results of this study imply that HRD professionals in MNEs should, first, have adequate cultural sensitivity as a competency of qualification on the view of communication. Under rapidly expanding and changing industry, we are facing business request of conducting international technology transfer to achieve a competitive advantage in cultural distance. Next, we, HRD professionals, need to own strategic and international approach of HRD on the view of strategic business admiration. Because in MNEs, the degree of internal consistency is determined by strategic and business orientation of top management in the HQ, business strategy crucially influences on the best fit between globalization and localization in HRD as well as in management. Academy of HRD is an emerging field with a short history, comparing to practice of HRD. In order to conduct this study, the researched several theories and practices, including case studies from articles of journals and books. Though the author could find many advanced researches in communication, strategic business, and HRM areas, regretfully, there were limited researches in the HRD field. Moreover, combined researches of HRD, communication, and multinational strategy were much less. Therefore, to set a firm base for the rooting and development of academic HRD, further researches should be conducted on the multi-perspective of these three or more as well as more on one perspective of HRD by HRD professionals. Combined with qualitative study, extensive quantitative study will be needed to build upon a theoretical and practical model of strategic international human resource development (SIHRD) in MNEs.

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