INTERNATIONAL HUMAN RESOURCE MANAGEMENT 1.
Introduction Before this paper proceeds to give definition of what international human resource
management (HRM) is and its differences from local or domestic HRM, the general field of HRM must be defined first as it is directly connected with the international HRM, which is a sub-discipline of the general HRM. There are various definitions of what HRM is. Human Resource Management or more conveniently referred by its abbreviation HRM is the term commonly used to describe all those organizational activities concerned with recruiting and selecting, designing work for, training and developing, appraising and rewarding, directing, motivating and controlling workers. In other words, HRM refers to the framework of philosophies, policies, procedures and practices for the management of the relationship that exists between an employer and worker (Wilton, 2011, p.4).
According to Wilton (p.5) further, HRM consists of five broad functions of HRM which is central to managing the workforce as follows :
Resourcing of manpower – this function consists of ensuring adequate staffing for current and future business needs through activities that include human resource planning, recruitment, selection, induction, talent management, succession planning and the termination of the employment relationship (including the management of retirement and redundancy of employee).
Managing of employees performance – this function entails managing individual and team performance and the contribution of workers to the achievement of organizational objectives, for example through goal setting and performance appraisals.
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Managing of reward to employees – this function of HR concerns designing and implementing reward and pay systems covering individual and collective reward, financial and non-financial reward, including employee benefits, perks and pensions.
Human resource development – HRM functions include identifying individual, team and organizational development requirements and designing, implementing and evaluating learning and development programs.
Employment relations – managing communication between employee and the management and managing employees involvement in organizational decision making, handling union-management relations (including industrial action and collective bargaining over terms and conditions of employment), managing employee welfare and handling employee grievance and discipline.
International HRM has been variously defined in human resource management literature. However for this case study, the definition provided by Armstrong (2010, p.104) is sufficient as the working definition of this paper. According to Armstrong, international HRM is the process of managing people across international boundaries by multinational companies which involves the worldwide management of people and not just the management of expatriates. In short, international HRM deals with which of the activities in the broad definition of the general field of HRM (as in Wilton’s definition and elaboration above) change when HRM goes international (Dowling, Festing and Engle, 2008, p. 3).
According to Briscoe, Schuler and Claus (2008, p. 26-27), international HRM differs from domestic HRM in several ways. The differences lie in the additional burden and broader scope of responsibilities assumed by the HR department where in international HRM the HR department will be : 2
Dealing with more HR functions and activities – for example, the HR department may have to take care such things as work visas, foreign taxes and assistances with relocations for their employees which they send to overseas assignment or for incoming expatriates working locally (local or domestic HRM only takes care of local arrangement for their local employees).
Required to have a broader expertise and perspective – this entail knowledge and expertise, on the part of the international HR department, about foreign countries, their employment laws and practices and cultural differences.
Required to have more involvement in the employees lives – this is because employees (expatriates coming in to work at the company’s home country or local employees send abroad or foreign employees send to the company’s other foreign offices) relocate to an unfamiliar environment and place and requires various assistance to start their life in the new place.
Dealing with and managing a much wider type of employees than domestic HRM – this task is considerably complex since the various types of the global employees require different staffing, compensation and benefits program.
Dealing with more external factors and influences – these include dealing with issues stemming from multiple government, cultures, currencies and languages.
Dealing with a greater level of risk, greater level of exposure to problems and difficulties and thus greater level of exposure to much greater potential of making mistakes in HR decisions.
Apart from the above differences, Briscoe, Schuler and Claus (2008, p. 26-27) also mentioned that another difference is the level of competency and sensitivity demanded from international HR managers which is normally not demanded from domestic HR managers. 3
This is due to the fact that international companies are faced with issues such as geographic dispersion of the companies operation, multiculturalism, different legal and social systems and the cross borders movement of capital, goods, services and people that is not normally faced by domestic companies.
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Summary of the case Nike attempts at public relation have often backfired. Among public relation missteps
by Nike are ignoring its corporate social responsibility function, glorifying violence and bad taste, eradicating sporting spirit in sports and contracting factories with poor labour standards to manufacture their products. With regards to the final one, Nike’s problem lies in the fact that its international human resource management (IHRM) fails to exercise complete control over its contracted manufacturing facilities overseas (outside USA). Among allegations of labour mistreatment of Nike’s overseas factories are, for example, in Vietnam, Nike paid its workers a daily wage less than the cost of three meals of rice, vegetables, and tofu and subject factory workers to torture and inhumane treatments. Nike however had taken steps to improve its image. Among corrective steps taken by Nike were severing ties with four Indonesian factories for violating labour standards and raise the minimum wages for its workers and impose American air quality standards on its overseas plants. Nike goes even further by making the condition of their factories accessible to the public. Nike decision is seen as a catalyst for other multinational companies to follow suit.
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Nike’s problems and the recommended solutions From the reading of the case, the past problems faced by Nike is identified as its bad
reputation due to unethical labour practice and non-compliance of labour standards by its worldwide contract manufacturers (i.e. its global supply chain). Example of labour standards 4
violations by Nike’s contract manufacturers are employing child labour, paying wages well below the accepted standard for labour wages and inhumane treatment of workers. This problem is made worse by Nike’s initial denial of responsibility towards actions of its subcontractors. However, starting from 1997, it has take corrective action by terminating the contract with these problematic manufacturing companies.
The global supply chain revolution had created the conditions whereby multinational companies could outsource the manufacturing function of the business from independent factories in developing countries such as Indonesia and Bangladesh. Although these multinational companies have no manufacturing capacity themselves, they have considerable controls over their suppliers since for these factories, manufacturing contracts with these big names multinational companies will mean access to western consumers market. The other side of the deal is that these factories have to meet stringent design, quality, delivery and cost specifications.
Nevertheless one increasingly observed feature of this trend is the questionable labour conditions in the contract manufacturing factories in such developing countries. Among complaints from trade unions, NGOs and the media are instances of low wages, excessively long hours, physical abuse, discrimination, child labour and forced labour. In responses to these complaints, these multinational companies generally will give excuses that they did not own these factories and could not exercise controls over their suppliers – which is suspect since the success of global chain model is based upon influence and control of these multinational companies over the factories (Cunningham and Harney, 2012, p.618).
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From the reading of the case it is clear that Nike is also not spared from the above controversy. Nike’s brand image has been marred by scandals relating to labour condition at the company’s foreign plants abroad. I came as no surprise since Nike, like Disney and many other multinationals corporations, has to deal with negative publicity brought about by their arrangement with their foreign manufacturing contractors at one time or another. Below minimum wages, child labour and unsafe working conditions are occurring in factories subcontracted by these multinational companies in developing countries and local government may not have the resource needed to stop this practice (Mueller, 2011, p. 334).
The textbook solution of this problem is for Nike to comply with international labour and human rights standards or the ethical values of influential sections of the western society. This is the measure taken by famous multinational companies which are dependent on the reputation of their brands and which in the face of allegation of human rights abuses, sees their brands’ reputation suffered. These companies found it increasingly uncomfortable to deny responsibility and therefore started to explore ways of managing labour conditions in their suppliers’ factories (Cunningham and Harney, 2012, p.618).
In fact, Nike has been doing just this. This is proven by its support for Fair Labor Association or FLA. An initiative started in the 1990s, FLA is sponsored by the White House Apparel Industry Partnership to check on labour practices in the multibillion dollar clothing industry, both in the USA and internationally. It is a collaborative effort of socially responsible companies, colleges and universities and civil society organizations which aims to create a long term solutions to abusive labor practices by offering tools and resources to companies, delivering training to factory workers and management, conducting due diligence through independent assessments, and advocating for greater accountability and transparency 6
from companies, manufacturers, factories and others involved in global supply chains (Fair Labor Asociation, 2013).
Nike Inc.'s compliance program is accredited by FLA. According to FLA website , Nike places importance on its responsibility as a global company to bring about positive, systemic change for workers within its supply chain and in the industry. The targeted change is an all inclusive one, starting from the first phase of Nike’s product creation process to the impacts of Nike’s decisions on the lives of workers in the factories that manufacture their products(Fair Labor Asociation, 2013). As such it is clear that, Nike has already committed itself to ensure that its manufacturing contractors outside USA will comply with internationally accepted standards.
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Discussion on potential problems that may arise based on the recommended
solutions Though Nike association with movement such as FLA has managed to improve its brand manage, there is dissatisfaction on the part of suppliers and contract manufacturers. According to one supplier, while Nike and the FLA hold suppliers responsible and ask them to comply with the given standards, Nike does not provide them with extra expenses to upgrade and ensure the factories compliance with labour standards. In fact, they have to pay for all improvement done at their factories (Schipper and Boje, 2008, p. 519). There may therefore be a possibility that the contractors will not comply with the standards and contracts with Nike are terminated which will lead them out of business. The end result – closure of factories and people losing their jobs. In other words, there is a possibility that the code or standards is good only on paper, but in practice rendered nearly useless since their effectiveness can be restrained by many other factors. 7
This is the reason why Nike is shifting to a new approach. The new approach is grading of the contract manufacturers. Under this system, Nike is giving more importance to worker benefits and safety in its grading system for factories. Nike, which makes more than 90 percent of its shoes in Vietnam, China and Indonesia, wants all factories it uses to meet the increased standards by 2020. This is Nike attempt to wield its economic power to instil in contract manufacturers its new philosophy that better labor practices and sustainability will improve productivity with lower worker turnover and reduced costs. Those who fails to make the grade will lose business with Nike. Under the new rating system, “A” and “B” grades will be a bronze rating i.e. the minimum grade that must be achieved. Silver and gold are above that grade. As an initial target, Nike has the goal of all its contracted factories reaching the bronze level by 2020. Nike gave “A” ratings to 4 percent of its factories in the fiscal year ended May 31, 2011, compared to 6 percent in 2010. Factories with “B” grades also increased to 45 percent from 33 percent the year previously (Townsend, 2012, May 4).It is yet to be seen whether this new approach by Nike will completely solve its problems since in complying with the new approach, the manufacturing companies are facing the same old problem i.e. extra expenses to comply with Nike’ standards for which Nike does not contribute even a single cent.
The new attempt by Nike to correct it past mistakes is also giving Nike new problem. Nike’s new problem seem to be that it tries to satisfy third parties (i.e. labour rights groups) at the expense of its contract manufacturers. In order to satisfy these labour rights champions, Nike had asked its contract manufacturers to raise their standards. The contract manufacturers which are part of Nike’s global supply chain has no choice but to upgrade their factories. Those who do not will lose business with Nike. In fact as mentioned in the case study, Nike
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has already terminated contract with four of its Indonesian contract manufacturers. These will lead to redundancy (i.e. people losing their jobs) which will affect their family as well.
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Conclusion (lessons that could be learned from the case) International human resource management (HRM) is different from the ordinary
HRM in term of the HRM department scope and responsibility. In multinational companies, the HRM department have to deal with various labour issues such as sub-standard wages and inhospitable working condition in independent factories which manufacture their products. In the past, many multinational companies took the easiest way out by denying responsibilities and blaming the independent factories for labour malpractices. In the final analysis however, multinationals corporations are ultimately responsible for insuring humane working conditions in their domestic as well as foreign manufacturing operation. With regards to contract manufacturers abroad, this seems like an impossible task for Nike to accomplish. In fact, Nike continues to be scrutinized by activists and campaigners who view the ongoing problems in Nike contract factories as evidence that Nike attempt to solve labour condition problems at its contract manufacturing facilities serves a public relation purposes only (Johnson & Turner, 2010, p. 366).
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References
Armstrong, M. (2010). Armstrong's Essential Human Resource Management Practice: A Guide to People Management. London : Kogan Page Ltd.
Briscoe, D.R., Schuler, R.S. & Claus, L. (2008). International Human Resource Management. New York NY : Routledge
Cunningham, J. & Harney, B. (2012). Strategy and strategists. Oxford UK : Oxford University Press
Dowling, P.J., Festing, M. & Engle, A.E. (2008). International Human Resource Management: Managing People in a Multinational. London : Thomson Learning
Fair Labour Association. (2013).Home. Retrieved from http://www.fairlabor.org/).
Johnson, D. & Turner, C. (2010). International business: themes and issues in the modern global economy. New York NY : Routledge
Mueller, B. (2011). Dynamics of international advertising: Theoretical and practical perspectives. New York NY : Peter Lang Publishing
Schipper, F. & Boje, D.M. (2008). Transparency, integrity and openness : the Nike example. In : Scherer, A.G. & Palazzo, G. (Eds.). Handbook of Research on Global Corporate Citizenship. pp. 501-526. Massachusetts MA : Edward Elgar Publishing Ltd. 10
Townsend, M. (2012, May 4). Nike raises factory labor and sustainability standards. Bloomberg.com. Retrieved from http://www.bloomberg.com/news/2012-05-03/nikeraises-factory-labor-and-sustainability-standards.html
Wilton, N. (2011). An Introduction to Human Resource Management. London : SAGE Publications Ltd.
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