HRM in Multi-national Companies

Definitions

—  Multinational corporation

¡  Companies producing  or distributing goods or services in two or more countries

—  Transnational corporation

¡  A multinational with more than 2/3rds of its activities outside its home country

—  Why?

¡  Cost

¡  Complexity

Cost

—  Tax advantages

¡  For example, Rupert Murdoch’s News Corporation controlled by holding companies in the notorious tax haven the Cayman Islands – pays an average tax of 10%

—  Labour costs

¡  Low wage industries such as textiles

¡  High tech jet-airline industries

—  Centralisation

¡  Flower industry concentrated in the Netherlands as a result of lower air transport costs

Complexity

—  Domestic organisation

¡  Serves home market only

—  International organisation

¡  Serves home and overseas market. Has centralised headquarters in country of origin

—  Multinational organisation

¡  Produces goods or services in relatively autonomous overseas subsidiaries.

—  Global organisation

¡  Operates worldwide through independent overseas divisions which are coordinated rather than controlled by headquarters

—  Transnational organisations

International, multinational and global. Specialised unites located anywhere in the world ‘seamless network of footloose managers with a global mindset’

 Background Issues

—  Single Markets (EU, NAFTA)

—  Political Revolutions (Eastern Europe, Latin America)

—  Market Liberalization (WTO, IMF)

—  Multi-national companies include large household names such as McDonalds, Shell, Toyota etc. and much smaller companies

—  In 2001: 63,000 TNC with 800,000 foreign affiliates. Responsible for 2/3rds of global trade and 80% of investment

—  United Nations Development Programme (2000) demonstrated that largest MNCs have annual sales greater than many medium sized countries

—  i.e. Shell is twice the size of Nigeria

—  Of the largest 100 economic actors in the world, 51 are corporations, 49 are countries (Pilger, 2000)

—  In the past FDI generally flowed from West to developing economies

—  Now, more MNCs owned and controlled by non-Western sources – implications for IHRM

However

—  Of the top 100 non-financial TNCs, 91 in US, EU or Japan

—  Of the 2006 Fortune Global

¡  172 based in the EU

¡  114 based in the US

¡  70 based in Japan

¡  20 based in china

Structures and Relationships

—  The relationship between centre and subsidiaries, and between multi-national and nation

¡  Ethnocentric: favours home country effects

¡  Polycentric: favours host country effects

¡  Geocentric: global approach

¡  Regiocentric: regional structures

 Issues

—  Constant tension between centralisation and decentralisation

—  Linked to national, regional and global context

—  Business environment, economic, social, political factors

—  Occur at national, regional and global levels

—  Issues of legislation, trade agreements etc.

—  Convergence and divergence

HRM in Mergers and Acquisitions

—  A full joining together of two previously separate corporations.

—  A true merger in the legal sense occurs when both businesses dissolve and fold their assets and liabilities into a newly created third entity.

—  This entails the creation of a new corporation.

—  Example:

—  • Total merging with Fina and Elf

—  An acquisition is where one organisation continues to operate under its original brand name, but has a new brand at parent level.

—  This might not necessarily change who people work for in either business, although some parent organisations choose to say that the whole workforce is employed by them.

—   Example:

—  • France Telecom’s acquisition of Orange

—  An acquisition where the acquired organisation loses its former brand to operate under the brand of the acquirer.

—  This means that the acquired employees will have a new employer after the acquisition while the acquiring employees will not.

—  Examples:

—  • RHM being incorporated into Premier Foods

—  • Stanley Leisure being incorporated into William Hill

Divestment

—  A part of an organisation becomes a stand-alone business.

—  This means that employees will have a new employer after the divestment.

—  Example:

—  • British Telecom spun off their mobile division MMO2 for it to trade as a separate business O2

—  More than 50% of M&As are unsuccessful (KPMG 1999)

—  Inability to integrate culturally is more important than financial or strategic factors (Booz Allen  and Hamilton in Cartwright and Cooper, 1996: 28)

—  61%  of top managers believe cross border M&A to be riskier than domestic (Angwin & Savill, 1997)

—  Cultural distance hypothesis: Difficulties, costs, risks  increase with growing cultural differences.

—  But evidence is not clear cut: Cultural differences in M&As can be an asset rather than a liability

The Process

—  Scoping and due diligence

¡  initial merger or acquisition talks between both businesses; hiring third party adviser; a few selected senior managers are aware of the initial talks; due diligence is being conducted; deal is finalised; integration programme office is set up and integration resources are identified.

—  Integration Planning

¡  extended management and individuals needed for the integration programme and work streams are involved; integration kick-off and work streams kicked off; planning and communication; operational integration achieved.

—  Short-term integration

¡  integration programme office likely to be closed down; third party advisers likely to leave; focus on meeting operational integration milestones and deliverables; for some, back to ‘business as usual’; for others, focus is still on integration of people processes and systems.

—  Long-tem integration

¡  shared learning from the programme (gone well/not gone well); majority of the business being back to ‘business as usual’ due to many integration milestones being achieved; ongoing measurement of achievements and return on investment; some still focusing on integration of people processes and systems.

Employees

•       A list of employees including positions

•       CVs of key employees

•       Current salaries, salaries and bonuses stock option and stock purchase and retirement plans. A list and description of benefits

•       All employment contracts between the Company and any of its employees

•       The Company's personnel handbook

•       Copies of collective bargaining agreements

•       A description of all employee problems within the last three years and any labour disputes

•       A description of worker's compensation claim history

•       A description of unemployment insurance claims history

HR Issues

—  Human resource planning

¡  i.e. McKinsey survey suggests that 76% of firms see retention of key talent as a major issue. 67% see executive retention as key

¡  Probability of executives leaving following acquisition by a foreign multi-national is 75% by fifth year. The majority leave in the first two years

¡  Talent maps

¡  Inducements to stay i.e. stock options, retention bonuses

—  Communication

¡  Rumour

¡  Role of HRM

Ethical Considerations

—  Downsizing

—  Accountability

—  Universal standards versus variability

¡  For example, remuneration, benefits, training and development

—  Legal frameworks

—  Hostile takeovers

Conclusion

—  Practicing and merging HRM across borders is complex and prone to breakdown

—  The early integration of HRM versus secrecy

—  Companies need to ensure they retain talent, manage the process well. For example, downsizing.

—  Ethical issues need to be considered.