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Nature and impact of HRM practices of MNC on host country nationals employed in its subsidiary

By Srujan Anand Prashanth Shekhar Khaleed shilpa


HRM strategy of the global firm. MNC under study. Impact. Policy implications. Demonstration effects. Conclusion.

HRM strategy of the global firm

Strategy followed is transnational. A part of strategy , organizational structure allows its subsidiaries sufficient independence to manage and exploit local differences . To adapt to local conditions and so it adjusts its International compensation and Reward System (ICRS). Strategic approach is basically pay for performance ---one of pillars of their

Integrater s ICRS policy is to implement common ICRS in all host contexts. Gather best ICRS designs ideas around world and made in to set of practices that used consistently. Create seamless ICRS---ONE WORLD global strategy. Headquarters and subsidiaries are heavily interconnected .---ICRS designs ideas flow efficiently.

In India income tax laws drive total compensation. This income tax laws effects on managers pay decisions ,especially on the mix of compensation. For global company, the total compensation has the same core. Pay for- performance system is example of a core principle

As per guidelines of Insurance Regulatory Development Authority (IRDA) Company had to enter in to joint venture with Indian partner. That results . Two phases with regard to HRM practices of the company discussed. Pre JV phase Post JV phase

MNC Under Study

Holding company engaged through subsidiaries in the business of property and casualty insurance on world wide basis. Leading international insurance organization in 1882. ranks among top five insurers. 25% of its business comes from countries outside US.

This company engaged in the Indian insurance market since early sixties. After liberalization in nineties company established India team. Engaged in the education of the Indian insurance customers through learning events. Organized risk management seminars .

Deregulation of the Indian insurance was passed by the Indian parliament in late 1999. That laid ground for liberalizing Indian insurance sector . Allowed overseas players to enter Indian insurance market.


As per IRDA regulations ,aggregate holdings of equity share by a foreign company cannot exceed 26% of paid up equity capital of the new insurance company. Therefore company needed to identify its Indian joint venture partner.

Initial stages
Start liaison with the government official in search for Indian JV partner. Two liaison offices(unstructured) were opened in two metropolitan cities. Finances were controlled by zonal office based in Singapore. A home country national was sent as the country manager .

External affairs division at Washington responsible for initial research and establishment of new subsidiaries . At the time of regulation new country manager was recruited (expatriate, Indian national). Several other staff recruited with both global exposure and networks in Indian market.

Impact of this HRM practices mainly on: Core and peripheral issues. Distinction between core and peripheral employees. Employee commitment. Participation and cooperation.

Policy implications
HRM practices of MNC transferred to MNCs subsidiaries results in: Bring organizational knowledge. Build learning environment. Ultimately development of new products and services. Good employee relations.

International code ethics is necessary in building ethical capability. HRM and other organizational practices that create and sustain these capabilities. HRM is key for developing competitive advantage is the effectiveness of integrating their HRM activities with their strategic goals.

Strategic choices for the MNC include focusing primarily on: Multidomestic strategy Global strategy Transnational strategy Three possible MNC orientations regarding HRM practices: Adaptive Exportive Integrative

Number of strategies may be adopted by MNC s to address : Issue of staff turnover. Enhance staff retention rate. These HR strategies also include: Firms HR policy and practices must be fair to local staff. Strategic compensation schemes are designed.

Long term career development plans. Job training. These strategies results in: Commitment of employee to their personal growth and career advancement. Sustained competitive advantage. Produce complex social relationships. Generate organizational knowledge.

Demonstration effects
Technological and informational spillovers to local firms and workers. Net benefits depends on nature of MNCs operations . Also depends on endowment of local skills, technological institutions, local market size,technologial level and activities of local firms.

Spillovers is a part of economic growth process . Spillovers cause growth of local industry, provide incentives for FDI inflow. Cause change in nature of operations of MNCs in host economy. Increases magnitude of the spillovers over time.

General affiliate HRM practices closely follow local practices . The degree of similarity to local practices is significantly influenced by: Method of founding. Dependence on local inputs. Presents of expatriates. Extent of communication with


Key task facing HRM in MNCs today is transformation of the whole system of HRM to support : Organizational learning. Knowledge development and transfer. Systematic differences in the ways MNCs of different nationalities manage their human resources.

Hurdles: Transferring HRM practices to different countries is problematic. Parent companies often failed to homogenize and transfer home practices overseas.


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