Strategic Human Resource Management of Asian Enterprises in The Process of Internationalization

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1 Strategic Human Resource Management of Asian Enterprises in The Process of Internationalization YOU Jianxin 1 LIN Zhengping 2 School of Economics and Management of Tongji University 1239 Siping Rd. Shanghai, China Abstract: The integration of global economics improves the international development of Asian enterprises. During this process, how human resource management (HRM) contributes to the core competence of an enterprise becomes the focus of discussion. This paper firstly talks about the significance of strategic human resource management (SHRM) based on analyzing Porter s Generic Strategies. And secondly it summarizes the existing status of Asian enterprises human resource management. Finally, this paper represents a model of SHRM of an Asian enterprise with traditional Asian culture during its course of internationalization. And it also brings forward three main points of SHRM as following: first, matching the vision of the enterprise; second, adapting to different cultures; and last, absorbing advanced western managerial techniques under the guidance of classic oriental ideologies. Keywords: SHRM, Asian enterprise, Internationalization 1 YOU Jianxin (1961 ~ ), President of Economics and Management School of Tongji University., Doctor, Professor and Supervisor of Doctor. 2 LIN Zhengping (1979 ~ ), Economics and Management School of Tongji University. Doctor Candidate of Management Science and Engineering 1

2 1 Preface With the development of global economics, more and more Asian enterprises with different scales have played more important roles in the world industry chain in recent years. For instance, affected by the world wide optimization of productive elements the world manufacturing center was transferred to Asia. Nowadays, people have reached a common perspective that Asia is forming an independent phase of integration of R&D, supply, production and sale. Manufactured in Asia became much more important thus the most famous multinational companies of IT, IC and Chemical industry, such as Microsoft, Motorola, GM, GE, Siemens, P&G and Dupont and so on, already transferred their manufacturing centers to Asian. Besides being the base of manufacturing, Asian enterprises now have focused on the world market, started to develop their own products and built their own brands. Some famous Asian enterprises such as Sony, Samsung, Bank of China have also been in the Fortune Top 500. And other Asian enterprises are trying their best to develop internationally. During the process of internationalization, Asian enterprise should know clearly about its scarce human resource management. Human resource is always one of the most important resources in a corporation. Research (Zhao Shuming, 2002) shows it is human resource that becomes the source of core competence of an enterprise. If an Asian enterprise wants to keep its competitive power in the world market, it should learn to reunite and use all its resources strategically, especially link human resource planning with its business vision. That is strategic human resource management insures HRM to support the business-level strategy of an enterprise. 2

3 Following we ll discuss on Porter s Generic Strategies, analyze the significance of SHRM in the context of Asian business culture and then study on the task of SHRM of Asian enterprise in the process of internationalization. Notice that all the Asian enterprises discussed in this paper are specifically defined in the enterprises established by Asian and pursuing traditional oriental management ideology. Although there are lots of differences between enterprises, regions and countries even in Asia, the differences between different continents are much more obvious and important. Therefore this paper focuses on the distinction between oriental and western business styles when talking about the traits of Asian business style. 2 Business Strategies and SHRM 2.1 Competitive Strategies of Business Study data of Jonathan Michie and Maura Sheehan (2002) show the effectiveness of HR policies and practices will depend, in part at least, on the strategy which is pursued by a company. The word strategy, deriving from the Greek noun strategus, meaning commander in chief, was first used in the English language in Widely used in business management gradually, the word strategy has become an important term and a research field of management. Studies on business strategies started in mid 1950s and became a hit in 1970s when long-tern objective management became focus for the influence of unstable business environment. In the early 1970s, 85% of the biggest 500 companies of USA established Strategy Planning Department. In the late 1970s, the 3

4 revenue from business strategy consulting almost reached more than 300 million US dollars. Among all the theories of business strategies, Michael Porter s theory is the brilliant one of those widest accepted by Asian business men. Porter developed his theory by analyzing the whole actual business environment and industry. The theory bases on the economic situation, which is characterized by strong competition, cyclical developments and relatively stable market structures, just like the business environment of Asia nowadays. The most significant contribution to our understanding of business strategy made by Porter is providing a framework that models an industry as being influenced by five forces in the famous work Competitive Strategy (1980). Those five forces are Supplier power, Barriers to entry, Threat of substitutes, Buyer power and Degree of rivalry. The strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industry context in which the firm operates. SUPPLIER POWER DEGREE OF RIVALRY THREAT OF SUBSTITUTES RIVALRY BARRIERS TO ENTRY BUYER POWER Figure 1 Diagram of Porter's 5 Forces 4

5 If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Porter also helped a firm to position correctly in the industry by formulating a framework that described three competitive strategies: cost leadership, differentiation and focus. Figure 2 illustrates Porter's generic strategies: Target Scope Advantage Low Cost Product Uniqueness Broad (Industry Wide) Cost Leadership Strategy Differentiation Strategy Narrow (Market Segment) Focus Strategy (low cost) Focus Strategy (differentiation) Source: Figure 2 Porter's Generic Strategies Schuler and Jackson (1987) link Porter s three strategies with the associated behaviors of human resource practices that a firm should adopt. They argue that human resource practices will prove effective only where the firm emphasizes the importance of either quality enhancement or innovation within its business strategy. In organizations pursuing a cost based strategy, the values and goals imbued within human resource would be consistent with the organization s primary cost reduction goals. 5

6 2.2 Strategic Human Resource Management The theory and practice of human resource management experienced two important changes during the developing history, firstly from personnel management to human resource management; and secondly from human resource management to strategic human resource management. SHRM uniformly and adaptively programs all the activities of human resource to achieve business goals by fitting staff in with organization systematically. The most important thing of SHRM is to regard human resource as the key factor for competitive advantage. And in a SHEM system managers should establish the strategy of human resource management after analyzing the position and environment of the firm in its industry and evaluating the existing human resource ability. SHRM emphasizes the matching of human resource strategy and business-level strategies. Figure 3 shows a common process of developing strategies of human resource management. BUSINESS VISION AND GOAL EFFECT OF ENVIRONMENT ANALYZE EVALUATING HUMAN RESOURCE ABILITY ANALYZE STRATEGY OF HRM Figure 3 Model of SHRM After a firm makes sure of its position in the industry, it will choose its HRM 6

7 strategy according to the business strategy. Different strategies acquire different employees with different techniques and different role behavior. Strategic human resource management should match business strategy by focusing on the Differences. 3 Conditions of HRM of Asian Enterprises The behavior and value of Asian are obviously different from those of west people in business activities. There are four essential characters of Asian business environment (Philipe Lasserre, Hellmut Schutte, 1999): (1) role of government; (2) domination of relationship; (3) effect of morality and religion; and (4) relation of competition and business logic. In the process of internationalization, although Asian enterprise has gradually learnt about the significance of strategy and chosen its correct strategic position with the help of SWOT analyzing, there still exists defects in its human resource management system. Generally speaking, most Asian enterprises have the two traits in the HRM as follows. (1) Incomplete function of HRM department. Most of HRM departments only provide background support and service. Compared with other departments, HRM department seems much more like a background supportive unit than a functional section with equal status in an Asian enterprise. HRM department usually provides administrative and supportive service passively at the request of other departments. So many trifling supportive services make HRM department lose its function of strategic support. Those trifling passive services are almost unorganized, not to say strategic planning. 7

8 (2) Having advanced ideologies of management while without corresponding scientific management system. Asia has a long history with great traditional culture which includes many excellent management ideas. Most Asian enterprises pursue these ideologies in the business practice. For example, they practice the management of Human Oriented ineradicably and apply themselves to make the enterprises big harmonic families. While excellent ideologies without system can only add the random of management results that decreases the efficiency of management. Without the restriction of management system, Human Oriented turns into Relationship Oriented which obstructs Asian enterprise getting into the world market at a certain degree. Take Thailand as an example, like most of the neighbors in south and south-east Asia, Thailand business men believe it is human that is the most important compared with time table or deadline or other business factors. That explains why Thai can tolerate being late for a business meeting. While on the other hand, Japanese business men who also believe Human Oriented is so astonishingly punctual that they use second as the counting unit of time. Therefore Asian enterprises should combine traditional management ideologies with modern managerial techniques. Guided by oriental ideologies and restricted by western system, Asian enterprise should learn to manage human resource strategically. 4 SHRM of internationalizing Asian Enterprises In the process of internationalization, SHRM should reflect the business vision of globalization. Generally speaking, global SHRM of Asian enterprises includes the three 8

9 key points as follows. (1) According to business strategic vision and guidance; (2) adapting to different cultures; (3) linking human oriented ideology with institutionalized system. 4.1 According with Business Strategic Vision and Guidance Although Porter provided three generic strategies of business level, the author believes strategic human resource management can be divided in two categories as to accord with cost leadership strategy or differentiation strategy. (1) Cost leadership strategy: HRM outsourcing. If a firm adopts cost leadership strategy it should try its best to cut down the cost of every section including the cost of management. Accordingly, HRM is also brought into the cost leadership management system to reduce its cost. So the task which an enterprise has to face is how to reduce the cost of HRM but insure the quality of its service. Research shows the budge of HRM in 2001 reduced from 1% to 0.8% of an enterprise s whole expenditure (source from: Society for Human Resource Management of USA, 2002). Moreover, the proportion between HRM employees and the other employees of the enterprise declined from 1:100 in 1990s to 0.9:100 (BriTay International Inc. 2003). If an enterprise can outsource some parts of HRM functions such as communication function, recruiting, compensation and welfare planning etc, it can focus on efficient production. A common example is that some great multinational companies in China such as Motorola and IBM already outsourced the recruiting function to Chinahr.com. The key advantage of HRM outsourcing is enterprise will receive cheaper but more professional service from its 9

10 HRM service supplier so as to reduce the cost of human resource management. (2) Differentiation and focus strategies: ability building and career planning. Firms pursue differentiation or focus strategy acquire higher product uniqueness and correspondingly acquire more professional staff. In this context HRM should not focus on low cost but concentrate on cultivating talented employees. Ability building program is very important in such enterprises. Different from training, ability building program is self-perfection system which focuses on the development of employee s self-learning ability, establishing excellent learning environment and creating good condition for employee s ability improving. Career planning is another key point in such an enterprise, which helps employees to set plans for their careers according to the demands both of enterprise and the employee. Both ability building program and career planning should link the demands of enterprise and the needs of its employees so to prevent employees form job-hopping as well as cultivate potential managers for future. 4.2 Adapting to different cultures Although the basic functions of HRM are the same, all firms must recruit, select, train, motivate and reward their employees to accomplish the organization s goals, the concrete challenges of each company are totally different. James P. Burton and his colleagues (2003) argue: This is true for firms operating in East and Southeast Asia, just as it is for firms operating in Europe and North American. How firms go about meeting these challenges, however, depend a great deal on the context and culture in which the firm operates. 10

11 Because of culture differences, some traits of Asian business environment are so unique that it is hard for a western business man to get used to. (1) Problem of communication. Since in a relationship oriented society, Asian seldom express themselves directly or even hide their real thoughts in order no to break the relationship with other people. This sometimes embarrasses western business men who are famous for their work style of getting down to job directly. (2) Limit of society rank. Strict traditional society class makes most Asian enterprises adopt pyramid-shaped organization which can not react to the changing of market swiftly. That might make them lose chances in the international business. (3) Discrimination of gender. Undoubtedly females are almost not allowed to participate in business activities in some region of Asia yet. There still exists sex discrimination in Asian business field. If an Asian enterprise cannot overcome this shortcoming when dealing with its international business, it may cause unnecessary troubles or even lawsuits. (4) Habit of feedback. It seems that Asian business men don t care about periodical feedback. They don t even report how business getting along to their supervisors or business partners until the last minute. That will throw the unprepared supervisors or partners into confusion when things changed unexpectedly. In short, if a manager of an Asian enterprise wants to initiate a SHRM system, he should make it absolutely include the following four points: (1) Create an efficient way of communication. Such as establish a communication system in which employees will communicate straightly and openly. 11

12 (2) Launch an education campaign to help the employees in the pyramid-shaped organization with taking right attitude and effective method to deal with international business. (3) Introduce different cultures and customs to the staff so they can understand some activities of western business men besides their attitude to women s running business. (4) Institute a feedback system in which employees are ready to feed back the progress of the business so that decision makers can make decision as soon as possible. 4.3 Linking Human Oriented Ideologies with Systematic Management The essence of human oriented ideologies is to recognize and understand humanity, respect their needs on different hierarchies. Some research shows it is possible and necessary to introduce the ideas and methods used in ISO management system to HRM. That is to establish and perfect HRM system to standardize the management process, so as to avoid the randomicity caused by only focus on humanity. Therefore, during the internationalization process, Asian enterprises should set up proper business strategy according to its competitive ability, initiate HRM strategy according to its business-level strategy. After determines its strategy, the enterprise will design and normalize an appropriate system, which will keep the advantage of traditional Asian culture as well as overcome the obstacles brought by disadvantage parts of the local cultures. 12

13 5 Conclusions In the way of becoming an international enterprise, it is inevitable to meet with varieties of problems. The key to deal with all those problems is that an enterprise defines the appropriate strategy. By far, human resource management in most of Asian enterprises is working just as a background supportive service but far from a strategy supporting system. Therefore, in the internationalization process, those Asian enterprises are recommended to pay more attention to strategic human resource management, make it fit enterprise business strategy, and then serve better for enterprise competitiveness. As a coin has two sides, traditional Asian business culture has its advantages and disadvantages. There are two tasks that managers of Asian enterprises should try to execute. First, they should introduce advanced managerial techniques from the West, which will help enhancing the working efficiency and competitiveness of an enterprise, under the guide of outstanding traditional culture. And second, they should introduce the outstanding traditional Asian culture which makes an enterprise keep its uniqueness to the world, and help western world to understand and accept the advantages of traditional Asian culture just as we accepted excellent western management theory when we started to be in our way to internationalization. References: Hans-Erich Muller (2001), Developing Global Human Resource Strategies, Discussion paper for European International Business Academy 27 th Annual Meeting, 13-15, Paris, 13

14 December James P. Burton, John E. Butler, Richard T. Mowday, Lions (2003), Tigers and Alley Cats: HRM s Role in Asian Business Development, Human Resource Management Review, 13, pp Jonathan Michie, Maura Sheehan (2002), Business Strategy, Human Resources, Labour Market Flexibility, and Competitive Advantage, International HRM Conference, Bangkok, December Li Xiyuan(2004), Ancient Chinese Motivation Idea and Modern Business Administration, Management Science, No.1 Lin Zheyan (2003), Strategic Choices of HRM in Chinese Corporation, Ren Cai Liao Wang, No.10 Michael Porter (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, New York: The Free Press Pacific Bridge, Inc. (1999), Developments in Asian Human Resources, Society for Human Resources Management s International Focus, Fall Pacific Bridge, Inc. (2000), New Developments in Asian Human Resources, Society for Human Resources Management s International Focus, Fall Philipe Lasserre, Hellmut Schutte (1999), Strategy and Management in Asia Pacific, McGraw Hill International (UK) Richard R. Gesteland (1999), Cross-Cultural Business Behavior: Marketing, Negotiating and Managing Across Cultures, Copenhagen Business School Press Schuler R, Jackson S (1987), Linking Competitive Strategies with Human Resource 14

15 Management Practices, Academy of Management Executive, 1(3): pp Wei Ming (2002), Strategic Human Resource Management, Academy of Chongqing Institute of Commerce, June Zhao Shuming (2002), Relationship between Human Resource and Corporation s Core Competence, Modern Economics Research, No.12 15

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