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Human Resources and the Global Economy

Based on Human Resource Management (4th Edition) by Alan Price - published by CENGAGE

Objectives

Many practitioners and academics have neglected HRM's environmental context, preferring to concentrate on technical detail. This is consistent with criticisms of traditional personnel management for its narrow focus on functional or 'micro' matters such as recruitment. In fairness, however, it must be recognised that personnel managers have always required a detailed knowledge of employment legislation, together with an understanding of industrial tribunals and trade union organization. Nevertheless, this represents a restricted selection from the wide range of environmental factors impacting on people management.

Often exponents of HRM have been no better than traditional personnel managers in this respect. Kochan and Dyer (1995: 343) argue that despite the obsession with strategy, HRM theories have a fundamental weakness: 'a myopic viewpoint which fails to look beyond the boundary of the firm'. Without the ability or the interest to locate their activities in a wider environmental setting, human resource practitioners can lose contact with the 'bleeding edge' of organizational survival. To counter short-sightedness and parochialism, HR managers must widen their perspectives beyond their own organizations (Beardwell and Holden, 1994: 613). In contrast to colleagues in marketing, production and finance, people managers seem less prepared to function in a competitive world.

This section addresses this wider perspective and introduces a number of fundamental issues which are developed later, for example:

  • What is the connection between education and skill levels and national success?
  • To what extent is the nature of people management determined by prevailing political ideology and national culture?
  • Is HRM simply a managerial reaction to the spread of market economies throughout the world?
  • Is there a contradiction between HRM's long-term emphasis and the short-term priorities of the stock market?
  • We observed in the previous chapter that the essence of HRM lies in the competitive advantage to be gained from making the most of an organization's human resources. However, it is obvious that we are constrained by the availability of suitable people - a factor which is heavily dependent on environmental variables. As we shall see, they include:
  • the implications of world and national economic conditions for business growth;
    -   the effect of inflation on the perceived value of wages;
    -   the traditions of local business culture;
    -   the particular nature of national employment markets.

In effect, therefore, these variables have a 'macro' effect on the utilization of human resources. Additionally, in this chapter we consider other effects caused by the activities of external stakeholders, such as:

  • competitors' utilization and demand for human resources;
  • multinational organizations and strategic alliances leading to restructuring or integration on a global basis;
  • economic and legislative actions by governments;
  • resistance or cooperation from trade unions;
  • pressure on senior managers to cut costs and maximise shareholder value.
Situational factors at the international and national levels include:

Globalization

Human resource management takes place within a business environment that is increasingly global in its reach. Globalization is a hotly debated subject with many implications on the practice of HRM, both within and between countries. The allocation of human resources depends on comparative issues such as international competitiveness and productivity, factors that are themselves dependent upon a wide range of variables. Foreign inward investment and subcontracting can bring benefits in terms of increased employment opportunities, earnings and economic development but this may be at the expense of comparatively low pay, poor working conditions and denial of employment rights. However, along with a trend towards reduction of trading barriers and encouragement of international trade, there is an increasing call for worldwide regulation of labour issues.

'Transnational' companies are relatively free to switch resources and production from one country to another. Typically this is done in order to maximise the benefit (to the corporation) of greater skills availability and lower employee costs.

The International Labour Organization has concluded that globalization intensified in the latter years of the 20th Century especially in terms of trade, investment, financial liberalization and technological change but also states that:

"The benefits of globalization have been very unevenly distributed both between and within nations. At the same time a host of social problems have emerged or intensified, creating increased hardship, insecurity, and anxiety for many across the world, fuelling a strong backlash. As a result, the present form of globalization is facing a crisis of legitimacy resulting from the eerosion of popular support."

Some of the main factors which have been identified as being at the root of the problems and widespread public disquiet are:

  • Reduction in job security because work (and therefore jobs) can be moved from one country to another.
  • Undercutting of one country's wages by another, leading to erosion of wage rates.
  • Exceeding generally accepted working hours and exposure to health and safety risks to cut costs.

International human resource management

Human resource management is a system within other systems. The most complex of these is the international business environment. The forces which act on people management are not purely internal to an organization. (...) Factors outside a company's control will affect its requirements for human resources and the way they are managed.

One approach would be to compare what we can learn by studying different countries' people management methods with what that which can be achieved by focusing on just our own country. It is obvious that studying different countries is more difficult, because of language and cultural differences, lack of familiarity with them, access to information and so on. International HRM is a specific topic of study with an increasing range of research and literature available but it remains easier to concentrate on one's own country. So, comparative HRM is likely to be unbalanced in coverage and may perpetuate inherent misunderstandings whereas one-country studies can be more systematic and detailed.

However, on the other side of the equation, International HRM can bring more surprises, offer a wider framework of understanding, and give insights into the management systems of overseas competitors. We are in a global market and the outside world can not be ignored.

Trading blocs

International trade has grown to colossal proportions in recent decades. The bulk of this trade is concentrated in (and between) three major trading blocs: the European Union, the North American Free Trade Area (NAFTA) and the 'tiger economies' - newly industrialized states of East Asia. 

Economic growth and employment

Economic growth is the most significant overriding variable for people management since it determines overall demand for products and services, and hence employment.

(...) The law of the market jungle rules - survival of the leanest, fittest and fastest. (...) 'Market Darwinism' forces businesses to change direction at short notice, seeking any possible competitive advantage. Businesses have to keep a worldwide watch for the next revolutionary improvement in productivity or service.

You can debate the degree of control (or ability to predict) which organizations can have regarding environmental factors. They are not totally at the mercy of the economy or market forces and the biggest have considerable influence within their market sectors. Secondly, growth and recession tend to be cyclical so there is merit in sitting out the bad times and continuing with plans for the future. On the other hand, organizations need to be alert because market conditions, consumer demand and technology change quickly. So long-term strategies (and employees) need to be flexible and constantly reviewed.

The developing world

Developing countries are gradually being brought into the global industrial economy. (...) Private capital is being moved around the world in search of profit from flexible and open economies. Complex factors attract this capital: it is not simply a case of the cheapest employees.

The European Union

Within Europe, the EU has created a new dimension for people management. It has undertaken a number of initiatives which are aimed at improving economic conditions in less privileged regions.
 
HRM and the Business Environment   >  HRM and the State

HRM Textbooks

Human Resource Management

Human Resource Management, 4th edition
by Alan Price
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Fundamentals of Human Resource Management
 Shortened version of Human Resource Management - concise analysis for non-specialists and one-semester courses.
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