Country of origin effect and international human resource management

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Introduction

Human resource is a term that refers to the formal systems designed to management people, operation, and processes within an organization. As such, the primary objective of a human resource management (HRM) is to ensure there is availability of right people for the different positions and departments to oversee the organization meets its set goals effectively. However, it is critical to indicate that the work of human resource becomes more challenging when it comes to governance of multinational companies as it is imperative to manage all the associated international business operation and management.  As the technology continues to change, firms develop greater international focus, the development, as well as management of people to adapt these changing conditions, becomes more fundamental. Therefore, there are a vast number of factors that may influence how internal human resource manager function. One of such element is the country-of-origin effect and host country effects. As such, it will be imperative to understand how country-of-origin effect on the strategic international human resource management orientation in multi-national companies and discuss the extent to which it is the only influential factor.

Definition and Description of Country-of-origin Effect

By definition, country-of-origin effect refers to psychological impact related to attitude, perception and purchasing decisions of consumers as influenced by country of origin of the product. In particular, research has shown this concept serves as a cue from which buyers make inferences regarding specific attributes of a product (Stoenescu and Constantin, 2014, p. 132). Country of origin triggers the evaluation of the quality of the items sold by an international company as well as its performance. Consumers often infer product characteristic based on their experience and stereotypes about the country of origin. Therefore, this affects the perception of the consumers beyond their conscious control.  For example, people may opt to buy teddy bears made in China as they believe the product is competent, benevolent and honest which suggest that negative country of origin effect can offset if the buyers trust the store selling the item (Agrawal and Kamakura, 2013, p. 257).

Definition and Description of Host Country Effect

Host country effect refers to the changes that an organization must adopt in terms of its HR practices, legal bindings, and business policies among other factors to set up a business in a different country other than its origin (Budhwar and Debrah, 2013, p. 267). Each country has its business legal controls and culture that shape the way organizations operate there. Often, companies formulate their strategies depending on their country of origin. However, when they expand internationally, human resource management and practices are largely influenced by the host country culture and legal bindings. Commonly there are three major strategies that HRM can adopt to manage the changes: ethnocentric, polycentric and geocentric.  In ethnocentric, the organization does not have to alter its current workforce and can keep its practices as parent country as the employees work as expatriates (Budhwar and Debrah, 2013, p. 267). Under the polycentric approach, the firm hires individuals from the host country.

How Host Country and Country-of-origin effect contribute to HRM Practices

Host Country Effect and HRM Practices

The Host country effect shapes the policies, and practices adopted by the multinational subsidiaries. These variables are many external business environmental factors. In other words, the HRM practices in the host country are determined by the external business system that emerges from cultural characteristics as well as power in relation to the company (Kokkaew and Koompai, 2012, p. 1). In open or permissive host country external environment which has fewer constraints on an organization, it is easy to introduce HRM practices from the country of origin as compared to closed host country environment which is often highly constrained by regulations. As such, one of the major external factors that influences HRM practice includes legal environment of the host country. Some of the components include the governmental economic and labor policies as well as national health and safety regulations (Muenjohn and Armstrong, 2015, p. 21). HRM must understand and comply with safety regulations of employees at the place of work. For instance, an organization that opts to do business in the United States must observe policies and laws related to the sexual harassment prevention, equal employment, safety and health management, disability accommodation and union contract grievances. Therefore, it is clear that host country legal framework determine the HRM practice to be adopted. Labor laws dictate minimum wages, compensation, and benefits as well as workplace practices which human resources must comply with in the host country (Nakhle, 2011, p. 519).

Political factor is another critical external factor that affects the human resource management practices in the host country. Government policies pose hurdles and threats to the HR professionals. For instance, the administration has set high minimum wages something that has resulted in a significant challenge to the human resource managers for multinational companies to cope with due to increased labor cost. Therefore, international organization thinking about launching its business operation in this host country must take into consideration the HRM development model that accounts for these political factors (Nakhle, 2011, p. 519). Also, in other countries such as Lebanon, political elements are a critical consideration when it comes to the recruitment process. In this host country, the criteria for selecting the applicants for bank jobs are not confined to experience and education only. It is mandatory for one to provide references to some politician as central HRM practice. At the same time, Lebanon business laws do not allow employees to discuss political matters in their places of work. Therefore, a multinational human resource manager working in this country should ensure strict adherence to these kinds of rules. Additionally, according to Shaw, Kirkbride, Fisher and Tang (2013) who focused on investigating effect of political factors in Singapore and Hong Kong realized that the government of Hong Kong has adopted regulations of non-interventionism while in Singapore Government monitor incentives and pay systems heavily. As such, the HRM operating in any of these regions is required to comply with those governmental regulations and rules.

Another host country external factor that influences the HRM practice, nature and scope is an economy of the nation. The economic condition of state is related directly to the labor and market supply which are key elements that subsequently impact processes of section and recruitment patterns of the firm. In particular, in labor market, decrease in supply for particular skills labor in the host country shape the development and training strategies to adopted by the human resource management (Bialas, 2013, p, 1167). Further, the DGP and per capita factors contribute significantly towards the decision made about the rate of wages which forms part of the benefits and compensation received by the employees. Negative GDP results in rigid HRM practices and drive cost cutting. Due to certain economic factors, HRM many opt to offer in-house training programs rather than hire external trainers.

For an organization that utilizes polycentric business approach, demographic is a primary external factor to observe in the host country. These are a characteristic associated with the workforce, for instance, race, gender, cultural background of the nation.  In particular, this is because the ratio of women to men affects the performance of an organization. Therefore, demographic factors will significantly affect the HRM practices for organizations that decide to hire employees from host country (Sparrow, Brewster and Chung, 2016, p. 217). Companies are thus required to keep balance in ethnic gender and racial diversity as well as design jobs by overseeing work-life balance (Sparrow, Brewster and Chung, 2016, p. 217). Therefore, demographic factors impact HRM practices associated with recruitment, planning, workplace security and sections of individuals.

Country-of-origin Effect and HRM Practices

Institutional business environmental factors from the country of origin affect the HRM practices, particularly, for the organizations that adopt ethnocentric approach when entering into another country. The country of origin effect attempts to illustrate how headquarters of the international corporation influence the overall human resource management practice in the foreign subsidiaries (Sethi and Elango, 2012, p. 278). The home country management strives to ensure subsidiaries follow the company’s practices focused on maintaining the positive consumer perception and attitude about the product. In most cases, if the oversea company fail to follow the guideline from the parent organization, the headquarter managers may pursue disciplinary actions against the subsidiary HRM to cease the behavior (Cicic, Tsai, and Patterson, 2015, p. 413).

As such, one of the fundamental institutional factors that subsidiary management is required to observe in the organizational purpose and mission. In particular, the home country firm oversees that foreign HRM framework is consistent with an overall mission which determines the subsidiary human resource manager’s practices indirectly. As such, a firm’s branch operating internationally is required to be consistent with this statement which in turn facilitates the employee and management’s routine decision making to reflect the psychology of the consumers about the product in the home country (Papadopoulos and Heslop, 2014, p. 289).

Another critical institutional factor that a company’s foreign subsidiary should observe is the organizational objectives and strategies because this reflects the set methods to attain the purpose. The human resource policies of the branch operating in other countries should is required by the parent corporation to support activities that lead to the implementation of the organizational strategy regarding branding, marketing and advertisement of the product (Chao and Jo, 2015, p. 186). At the same time, this determines the selection, recruitment, development, education and training as well as performance appraisal to be used to the HRM in the host country. The policies adopted there should be suitable and in line with the corporation’s general strategy which necessitates achievement of the objective. Subsidiaries should consider the overall firm’s policies, purpose, and targets when practicing as well as designing their HRM functions (Chao and Jo, 2015, p. 186). In layman’s language, the human resource plans of the foreign branches should match those of the organization in general.

Finally, it is imperative to indicate that past practice of the home country organization is a major institutional factor that impact branding, perception, attitude and purchasing decision of the consumers. The traditional experience of the organization allows the human resource management at headquarter to evaluate as well as comprehend the best strategies enable the corporation to garner a competitive edge (Neumayer,  Nunnenkamp, and Roy, 2016, p. 175). Therefore, HRM in the foreign subsidiaries needs to observe the organizational culture to continue communicating the positive value and attribute of the product offer to the consumers.

Extent to which Country-of-origin effect is the only Influential Factor

It has been identified that human resource management should adopt policies and procedures that support set the goal. First, to a large extent the country-of-origin and host country effect affect the selection and recruitment of employees. In the nation such as the United States, it is imperative for the human resource management to look for employees who can work in a collectivistic business environment (Lee, Lee, and Lee, 2013, p. 363). According to Sethi and Elango (2012), country-of-origin in the only influencing factors in global business strategy because of its relative impact on the different stage of decisions made by the consumers, for instance, attitude, behavioral attention, and perception. Further, more in some situations the buyers already have additional information as well as access to cues, for instance, physical attribute of the product, warrant and brand name. In such scenarios, the country of origin becomes the only critical factors to consider due to consumer perception about the quality of the product. Their purchase intention depends on the multiple cues considered (Lee, Lee, and Lee, 2013, p. 363). Further, to a large degree, the effect of country of origin is the only thing that matters when one considers consumer attitude formation and behavioral intentions. In other words, this has larger influence as the buyers move close to the purchasing situation based on the perceived use and quality of the item. Additionally, it is fundamental to indicate that consumers know that they have to live with the consequences of their decision. Therefore, international businesses should expect buyers to be willing to process effort toward the decision making in a real life situation (Lee, Lee, and Lee, 2013, p. 363). As such, country-of-origin effect matters when different countries offer similar products. For example, individuals may perceive microwave from certain nation to be better, not necessarily because the product is of good quality but owing to the knowledge that the country indeed manufactures excellent items. These are critical factors that are often embedded in or considered by the home country organization management. To a greater degree, the above features of the country of origin become an ingrained part of a multinational organization’s shape identify which shapes its global business orientation (Lee, Lee, and Lee, 2013, p. 363).

Examples of Multinational Organizations on Host Country and Country-of-origin Effect Practices

Examples of Multinational Organizations on Host Country Effect

British American Tobacco, a company that operates in Fiji is a good multinational organization that helps to explain how host country effect influence the HRM practice is.  It is one of the organizations that manufacture cigarettes. In Fiji, the organization is required to observe the legal requirement put by the government. The Essential National Industry is one of the agencies that have had a significant influence on the practices adopted by this corporation’s HRM because the company is required to adhere to the labor standards.  At the same time, it is imperative to indicate that government of Fiji and International Labor Organization standards significantly influence the demographic of the individuals that can be selected and recruited by the company. British American Tobacco is required to ensure that all employees are above 15 years. The government is focused on preventing child labor because it interferes with their schooling. Also, there are other stringent standards the company’s human resource should comply with including the issue of missing school, machinery and chemicals.

Another example of how host country effect influences the practice of an international corporation human resource management can be discerned by looking at how McDonald’s operate in Peru. It is one of the companies in food and beverage industry and operates in different countries across the world. Peru is a country that requires workers to be given a bonus on Peruvian Independent Day and Christmas which is similar to the employee’s monthly salary. Further, after a year of operation, the law requires that individuals are allowed to go on paid vacation for thirty days (McDonald, Kimberly, and Linda, 2012, p. 67). Therefore, it has been imperative for the McDonald’s HRM to consider the high costs associated with this. Also, Peru need each worker to contribute about 22% of their income to pension schemes, and the organizations are required to pay approximately 9% of the salaries to health and social insurances (McDonald, Kimberly, and Linda, 2012, p. 67). Also, the government holds that all employers should pay life insurance after four years of operation in the country. As such, all these are political and legal regulations that McDonald’s human resource managers have to comply with in Peru. In other words, it is clearly there are a vast number of policies in this country that influence HRM practices.

Examples of Multinational Organizations on Country-of-origin Effects

Apple is multinational organization headquartered in California, the United States that operates in different parts of the world.  The company sells different technology based equipment such as phones and computers. The organizations have been able to create a brand due to the country-of-origin effect because it products are perceived to be of high quality by consumers all over the world (Stoenescu and Constantin, 2014, p. 132).  Owing to the corporation’s experience, the human resource management has over the years understood the attitude of their consumers’ attitude and perception over their computers and phones. As such, the management has been focusing on developing a stable corporate culture that reflects this psychology.  In return, this has prompted a change in the selection and recruitment process of employees by individuals HRM department in the different countries and subsidiaries. Apple managers focus on hiring individuals who are creative and innovative. Further, they ensure that all employees are hard workers, committed to the company and precise on details (Stoenescu and Constantin, 2014, p. 132). The idea is to ensure continue perception and attitude about the organization’s products among the consumers in the different market across the world. The strategy has been effective for Apple over the years.

Conclusion

Indeed, country of origin, as well as host country effects, is an important aspect for multinational organizations that influence their human resource practices. Country-of-origin effect result in considering psychological impact on the consumer perception, attitude and purchasing decision. On the other hand, different host countries have distinct, political, legal, cultural and technological factors that significantly influence how HRMs operate. In particular, it has been identified that this due to institutional and external environmental business factors.  Elements embedded in the host country business system have an intense impact on the performance of a company and HRM practices.  All the above mentioned external factors transform human resource practices as organizations are forced to become efficient by the changing training, selection, and recruitment as well as development strategies adopted. Further, a company’s foreign subsidiary HRM should observe the parent organization’s practices embedded in set objective and purpose as well as past experience to design a business structure that meets the consumers’ perception, attitude about the product and influence their purchasing decisions. Corporations such as Apple, McDonald and British American Tobacco are highly affected by these factors in the countries where they do business across the world.

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