The significance of the human capital theory from the point of view of human resource management is that employees were empirically proved to be an important economic resource, worthy of investments such as training and development, even though Kenworthy and McMullan (2010) argue that there is very little known on return on investment on formal education in particular for entrepreneurs and suggests further gathering of empirical evidence on the theory. Still, Paul Kearns (2005) maintains that individual and organizational learning have to remain in the focus of human resources management.
Investing in human capital is only one aspect of human resources management (HRM) that can increase the capacity of organizations. Embracing the practices of human resources in business strategies of organizations has significant impact on organizational effectiveness (Beardwell & Claydon, 2007).
This is the core thought around strategic human resource management (SHRM), where practices relating to employee management are tightly tied to the goals of the organization. This is called a fit of HRM strategies with business goals, and is defined by Taylor, Beechler and Napier (1996) as "the degree to which the needs, goals, objectives, and/or structure of one component are consistent with the needs, demands, goals, objectives, and/or structure of another component" (p. 961).
A significant external force that is increasingly affecting all organizations from the smallest to the largest is globalization and its effects. Here, I understand globalization in the sense that Daniels, Radebaugh and Sullivan (2011) explain as “the broadening set of interdependent relationships among people from different parts of a world that happens to be divided into nations” (p. 49). To survive, organizations seek internationalization in order to
- Expand their operations,
- Acquire additional resources necessary for staying competitive on an increasingly international market,
- Minimize risk affecting business operations.
Employees are expected to forecast trends more accurately and react to these flexibly, which in turn presents higher expectations towards employee qualifications, such as technological literacy and processing and analyzing information from a variety of sources. This means, that fewer employees will be able to fulfill these higher expectations, therefore firms in turn will face a shrinking labor market and higher competition in retaining successful employees. Taylor, Beechler and Napier (1996) support this view, who understand flexibility as "the capacity of HRM to facilitate the organization’s ability to adapt effectively and in a timely manner to changing or diverse demands from either its environment or from within the firm itself" (p. 961). As an organization becomes increasingly internationalized, the need for flexibility will also increase. Adler and Ghadar (1990) have developed a model that describes 4 phases of internationalization:
In this article, I will use the definition of Taylor, Beechler and Napier (1996) who define IHRM as the set of distinct activities, functions, and processes that are directed at attracting, developing and maintaining a multinational corporation's human resources. It is thus the aggregate of the various HRM systems used to manage people in the multinational corporation, both at home and overseas (Taylor et al., 1996, p.960).
Strategic international human resource management (SIHRM) has been defined by Schuler, Dowling and De Cieri (1993) as “human resource management issues, functions, policies and practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of those enterprises” (p. 422).
Both of the above definitions focus on the interventions of human resource management, and in the second definition, there is an additional focus on the international aspect of the external environment, as well as the goals of the firm/organization/enterprise. What is also common in them is that international human resource management is seen as a field of management practice backed with firm administration procedures in large organizations. However, today the tendency is that every organization has to face and adjust its processes to internationalization. Scroggins (2010) has described this process:
Modern business practices must broaden, and with changing technology and the Internet it is arguable that all firms are today multinationals. Combined with the increasing mobility of labor markets and the means of production for those workers, few organizations can ignore the important role of international models of administration (Scroggins, 2010, p. 412).
A case study research by Festing (1997), conducted among ten German multinational corporations, supports these views. As part of the study, a set of propositions were developed by the researcher and explanatory case studies have been used in reference to these propositions. In the research process, interviewees were asked a set of “Why” and “How” questions to reveal corporate goals and HRM interventions in their organization. In addition to interviews, questionnaires and internal documents have also been used to confirm information gained from the interviews. Conclusions have shown that strategic international human resource interventions are of great value to global organizations, but should not be evaluated separately as individual instances. Instead, IHRM practices need to be consistent within an organization and considered as a whole to measure their overall impact.
To sum it up, cultural aspects of human resource management (HRM) are equally important in small businesses as in multinational corporations, and will predictably gain even more importance as globalization enfolds. Strategic International HRM practices can earn competitive advantage to enterprises by adapting processes that account for the international environment and by making sure that these are in line with organizational strategy.
- Domestic: minimal attention to cultural differences
- International: focus on local responsiveness and transfer of knowledge
- Multinational: focus on success in international competition
- Global: adherence to international quality standards while achieving local responsiveness.
In this article, I will use the definition of Taylor, Beechler and Napier (1996) who define IHRM as the set of distinct activities, functions, and processes that are directed at attracting, developing and maintaining a multinational corporation's human resources. It is thus the aggregate of the various HRM systems used to manage people in the multinational corporation, both at home and overseas (Taylor et al., 1996, p.960).
Strategic international human resource management (SIHRM) has been defined by Schuler, Dowling and De Cieri (1993) as “human resource management issues, functions, policies and practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of those enterprises” (p. 422).
Both of the above definitions focus on the interventions of human resource management, and in the second definition, there is an additional focus on the international aspect of the external environment, as well as the goals of the firm/organization/enterprise. What is also common in them is that international human resource management is seen as a field of management practice backed with firm administration procedures in large organizations. However, today the tendency is that every organization has to face and adjust its processes to internationalization. Scroggins (2010) has described this process:
Modern business practices must broaden, and with changing technology and the Internet it is arguable that all firms are today multinationals. Combined with the increasing mobility of labor markets and the means of production for those workers, few organizations can ignore the important role of international models of administration (Scroggins, 2010, p. 412).
A case study research by Festing (1997), conducted among ten German multinational corporations, supports these views. As part of the study, a set of propositions were developed by the researcher and explanatory case studies have been used in reference to these propositions. In the research process, interviewees were asked a set of “Why” and “How” questions to reveal corporate goals and HRM interventions in their organization. In addition to interviews, questionnaires and internal documents have also been used to confirm information gained from the interviews. Conclusions have shown that strategic international human resource interventions are of great value to global organizations, but should not be evaluated separately as individual instances. Instead, IHRM practices need to be consistent within an organization and considered as a whole to measure their overall impact.
To sum it up, cultural aspects of human resource management (HRM) are equally important in small businesses as in multinational corporations, and will predictably gain even more importance as globalization enfolds. Strategic International HRM practices can earn competitive advantage to enterprises by adapting processes that account for the international environment and by making sure that these are in line with organizational strategy.