Cultural And Institutional Differences In International Human Resource Management

Cultural Differences and their Impact on Human Resource Management

Discuss about the Human Capital and CEO Compensation.

Human resource management is the formal system devised to manage the employees of an organization. Multinational organizations are facing huge challenges in framing their international human resource management strategies for the differences between home country and host country (Albrecht et al. 2015). Moreover, the differences between home country and host country in regards to cultural factors and institutional factors highly impact on the human resource management strategies of an organization operating in overseas market. This study will choose Wesfarmers of Australia with an assumption that it will operate one of its subsidiaries in Tokyo, Japan. The study will assess the cultural differences between Australia and Japan, which would create challenges for the organization in selecting and managing the local employees of Tokyo office. On the other hand, the study will also demonstrate the institutional differences between Australia and Japan, which could impact the human resource management strategies of Wesfarmers. Furthermore, the study will also suggest the possible ways of standardizing the human resource strategies of Wesfarmers for managing the employees both in Australia and Japan.

Cultural differences between home country and host country can have huge impact on the human resource management practices of an organization. The cultural differences lead to differences in the values, norms, behavior and ethics of the employees in international subsidiaries. The socio cultural environment of a country builds the relationship between the employers and employees in an organization (Tian, Cordery and Gamble 2016). Likewise, Wesfarmers is also going to face cultural differences among the employees, while operating in Japan. Moreover, the cultural differences between Australia and Japan may have huge impact on Wesfarmers in regards to selecting and managing local employees of its Tokyo office in Japan. The cultural different differences between Australia and Japan can be better identified with Hofstede model of cultural dimension. This cross cultural communication model identifies the cultural difference between two countries. Hence, it can be possible to assess the impact of these cultural differences on human resource management practice.

Power distance index of Hofstede model defines the extent to which less powerful employees of an organization accept or expect the power of more powerful employees. This dimension can assess the differences in organizational power distribution between Australia and Japan. According to Ahammad et al. (2016), Australian organizations follow centralized power distribution in managing the employees. In such culture, low level employees are bound to follow the strict order of the high level managers. Moreover, the managers of Wesfarmers use vertical flow of communication for managing the employees in Australia. On the other hand, Jackson, Schuler and Jiang (2014) opined that Japanese organizations follow decentralized power distribution for managing the employees. In such culture, the low level employees can equally input their ideas for organizational decision making process. The horizontal power distribution system of Japanese organizations ensures equal power of all the employees. In such situation, the managers of Wesfarmers will face extreme challenge in managing the employees of Japan subsidiary, who will be demanding equal power in organizational decision making process. The manager may become incapable of setting formalized organizational hierarchy for the business process.

The Hofstede Model and its Application to Wesfarmers

Individualism VS collectivism index explores the degree to which the people in a particular society are integrated in a group. According to Paillé et al. (2014), Australians are more likely to prefer individualistic culture and have loose ties among the social groups. Likewise, the managers of Australian organizations also prefer individualistic achievements on the part of employees for leading overall organizational success. Hence, the managers of Wesfarmers in Australia assess the performance level of the employees based on their individualistic achievements. On the other contrary, Tung (2016) opined that the society of Japan is tightly integrated, where the relationship ties of the people extends their families and others in group. Hence, the managers of Japanese organizations follow collectivism working culture for managing the employees and their performance. Moreover, the managers follow teamwork working culture for managing the performance of the employees towards leading organizational success. In such situation, the managers of Wesfarmers will face extreme challenges in managing the local employees of Japan subsidiary. The managers of Wesfarmers are usually habituated in managing the employee performance with individualistic approach. Hence, these managers might be incapable of managing the teamwork working environment followed among the employees of Japan subsidiary.

Uncertainty avoidance index assesses the ability of a particular society to tolerate something unexpected and unknown. As per Bücker et al. (2014), the people of Australia are highly inclined towards embracing new ideas and concepts on their requirements. Likewise, the employees of Australian organizations are also highly inclined towards accepting new and differing ideas towards fostering uniqueness in organizational decision. In this way, the managers of Wesfarmers impose fewer regulations in organizational decision making. However, Bauer and Matzler (2014) opined that people of Japan highly honor their tradition and customs. Moreover, the managers of Japanese organizations opt for strict code of guidelines, behavior, laws and regulations in making any organizational decision. In such situation, the managers of Wesfarmers uses stiff code of guidelines and maintain tradition in making organizational decision. The employees are not open up to new ideas and through for fostering organizational innovation. In such situation, the managers of Wesfarmers can face extreme challenges in managing the local employees of Japan with traditional business ideas. Furthermore, the managers can also face challenges in selecting the local employees, as most of them have lack of innovative business though for fostering organizational competitiveness.

Masculinity and femininity index assesses the power of women in a particular society. Shin, Hasse and Schotter (2017) stated that Australian people prefer for masculine society, where women are provided with less power than men. Likewise, the managers are of Australian organizations are less likely to provide equal power to the female employees. Hence, a very fewer percentages of female employees have occupied higher positions in Wesfarmers of Australia. Moreover, females employees are somewhat neglected in such organization. On the contrary, Stahl and Tung (2015) pointed out that Japan has perfectly recognized the gap between the male and female in the society. Hence, in this society, women are provided with equal power like men in performing any type of role. Likewise, the female employees are also provided with equal power like their male counterparts. In such situation, the managers of Wesfarmers can face extreme challenge in dealing with the female employees of Japan subsidiary. The managers can also face issues in assigning the roles and positions to the female employees of Japan subsidiaries, as they are not efficient in dealing with female employees in higher position.

Institutional Differences and their Impact on Human Resource Management

Long-term orientation VS Short-term orientation dimension of Hofstede cultural model defines the connection of a society with its past in dealing with current actions. As per Ollier-Malaterre and Foucreault (2017), Australian society is high adaptive in new situation for dealing with current challenges. Likewise, the managers of Australian organizations are highly circumstantial and adaptive in new situation for dealing with current business challenges. Moreover, the employees of Wesfarmers in Australia always adapt in new situations for dealing with current business challenges for leading long term business success. On the other hand, Li et al. (2017) opined that Japanese society high prefer for traditional values and norms. Moreover, the employees of Japanese organizations prefer working in traditional ways and methods. They are highly reluctant to adapt with new and changing working methods. In such situation, the managers of Wesfarmers in Australia can face extreme challenges in selecting and managing the local employees of Japan subsidiary. Moreover, it can be very difficult for the managers to make them adaptive and willing to accept organizational changes for business requirements.

Indulgence VS restraint dimension assesses the degree to which a particular society allows free gratification to enjoy life. Kramar (2014) pointed out that the employees in Australian organizations freely enjoy fun for any kind of business achievement. However, the employees of Japanese organizations are kind of restraint to freely enjoy life because of their traditional values. In such situation, the managers of Wesfarmers face extreme challenges in making the employees happy by celebrating any business achievement with them.

Institutional factors are the activities and structures, which provide stability to a particular society. The most common institutional factors are like family, political condition, economic condition and religion of a particular country.  These institutional factors shape an organization in the same way in which they are built into the fabric of the society. Moreover, such factors have huge influence on the human resource management practice of an organization. The differences in institutional factors between two countries can impose huge challenge on HR managers in managing the international human resource practices.

According to Peng, Sun and Markóczy (2015), political stability ensures favorable employment condition for the employees in an organization. Likewise, the stable political condition of Australia has been proved to be favorable for the employees in increasing their pay structure. Moreover, Australian government has increased the minimum wage of the employees by 3.3%, which has increased the ultimate pay scale of the employees of Wesfarmers. However, Stone and Deadrick (2015) opined that political instability has been started to emerge in Japan, which has huge impact on the human resource management strategies of organizations. Moreover, Japan is recently being characterized by frequent shifts in governing political parties, which is ultimately impeding the effective policymaking of Japanese firms. The changing political condition of Japan often influences the employment contract of the employees. In such situation, Wesfarmers can face challenges in setting proper employee relationship strategy and reward strategy for the employees in Japan subsidiary.

Conclusion

Economic condition of a country has huge influence on the human practices of an organization. Karin Andreassi et al. (2014) opined that Australian economy is facing recent downturn, which is leading to slow economic growth. In such situation, the managers of Australian organizations can easy hire the talented employees from the loosening job market. Moreover, the managers of Wesfarmers can even maintain a good employment relation and retain them for longer period with lower compensation and reward strategy. However, Stahl and Tung (2015) stated that economy of Japan is highly developed over the years leading to high level of economic growth. In such situation, the Japanese organizations face challenges in hiring talented employees easily from the tightening job market. The managers of Wesfarmers will need to pay higher salary for attracting and retaining the employees for longer time. Hence, the organization will have to follow higher compensations strategy and reward structure for retaining the employees and managing good working relation with them.

Educational institutions play a significant role in influencing the human resource practice of the organizations. Moreover, educational institutions generate increasing numbers of highly educated and skilled job candidates in the job market. Such highly qualified and skilled job candidates are highly demanding to the employers, which ultimately impacts on the human resource management strategies of an organization. Abbas et al. (2014) pointed out that labor market outcomes by education level reflect well educational system of Australia. However, the graduates in vocational education are less in number in Australian labor market. Hence, Wesfarmers face challenges in hiring employees having specific job skills for a certain job position. On the other hand, Welch and Björkman (2015) pointed out that Japan is having a highly educated society, where the job market is full of highly qualified and skilled employees. In such situation, such qualified employees of Japan demands high salary packages and benefits to the employers. Hence, the HR managers of Wesfarmers must have to set higher pay structure for selecting the highly qualified employees in Japan Subsidiary. On the other hand, the high qualified employees of Japan are much more focused on their career development as compared to Australian employees. Hence, the HR managers of Wesfarmers will definitely face issues in building attractive career development strategies as per the demand of highly qualified employees in Japan subsidiary.

Trade union is an important institutional factor, which has huge influence on the human resource practices of the organizations. Trade union is an organized association of workers, who are highly concerned about protecting the interest of the employees. Moreover, trade union raises the voice of the employees to the employers for meeting employee demands. Huff, Song and Gresch (2014) pointed out that Australian organizations do not prefer much trade union to interfere in the core organizational decision making process like recruitment and selection, career development and employee relation. Hence, HR managers of Wesfarmers are less affected by the trade union in managing the employees of Australia. However, Japanese organizations fully allow trade union in the formation of human resource management strategies. Hence, the HR managers of Wesfarmers will face huge challenge of trade union interference in formation of career development, compensation package and employee relation management in Japan Subsidiary.

References

It can be possible for Wesfarmers to standardize its HRM policies and practices suitable to manage the employees both in Australia and Japan. The Australian managers of Wesfarmers will face the issue of organizational power distribution in Japan Subsidiary. In such situation, the organization should use decentralized organizational power strategy for managing the employees both in Australia as well as Japan. Such organizational structure will be known to the employees of Japan subsidiary, where the low level employees will get equal power like the high level employees in regards to inputting their own ideas in business process. Hence, the managers can easily manage the employees of Japan subsidiary with their well organizational structure. On the other hand, the organization should use teamwork working culture for minimizing the difference of individuality between the employees of Australia and Japan. In such organizational culture, the employees of Japan subsidiary will work in team or group for achieving the organizational goals collectively. In this way, the managers of Wesfarmers can easily manage the employees of Japan subsidiary, as they are actually accustomed with such teamwork working environment.

The employees of Wesfarmers in Japan subsidiary will be completely different from those of Australian employees in terms of valuing the innovative ideas for leading long term business success (Sheehan 2014). Moreover, unlike the Australian employees, the employees of Japan subsidiary highly honor traditional values for generating any business ideas. Hence, mangers of Wesfarmers should encourage the employees towards fostering innovative ideas by keeping touch with their traditional values. Furthermore, one of the most important ways of managing the employees of Wesfarmers in Australia and Japan is to promote the female employees in higher organizational position. The employees of Japan subsidiary are highly demanding of female employee empowerment. Hence, such strategy will be highly effective in managing the employees of Japan subsidiary.

One of the biggest differences between the Australian and Japanese employees is the capability of being circumstantial and problem solver (Furusawa, Brewster and Takashina 2016). Moreover, the managers of Australia can face the issue of managing the employees of Japan, who may not be willing to accept the change depending on situation. In such situation, the managers of Wesfarmers should be highly cooperative with the employees of Japan subsidiary in managing them to be adaptive with the changing circumstances of the organization. In this way, cooperative human resource management strategy will be helpful for Wesfarmers to manage the employees of both Australia as well as Japan subsidiary.

The highly developed economic condition of Japan has led to reduced employment. In such situation, Wesfarmers will face the issue of tightening job market, where the employees will be highly demanding to the employees because of their higher demand. Hence, the managers of Wesfarmers should set higher compensation strategy for selecting and retaining the top talents from the job market towards leading organizational success. The human resource strategies and policy making should be adaptive enough as per the changing government policies of the Japan. Moreover, the salary package and employee relation management strategy should be dynamic enough to adapting with the changing government policy of the country. In this way, the managers of Wesfarmers will be capable enough to manage to the employees of both Australia and Japan subsidiary.

The job market of Japan is full of highly educated and talented employees. Such highly skilled and talented employees are highly demanding to the employers (Guest 2017). Hence, the managers of Wesfarmers should set higher compensation and rewards structure for meeting the demands of such talented employees. Such higher compensation and rewards structure will help the organization to hire and retain the top talents in Japan subsidiary for leading high level of organizational success. On the other hand, the highly qualified employees of Japan are much more career focused than the employees of Australia. Hence, the organization should use standard succession planning strategy for meeting the career development needs of the employees of the employees. Moreover, proper and adequate career development planning would help the organization in managing the employees of both Australia as well as Japan.

One of the greatest differences between the Australian and Japanese institutional factors is the allowance of trade union to interfere in the core organizational decision making process (Tenhiälä et al. 2016). Japanese employees are highly dependent on trade union for raising their voice to the employers and meeting their demands. In such situation, Wesfarmers should provide adequate authority to the trade union of Japan for meeting the gaps between the employers and employees of Japan subsidiary. Moreover, the organization should set the human resource management strategy after discussion them with the trade union of Japan. In this way, the organization can manage the employees of both Australia as well as Japan subsidiary.

Conclusion

While concluding the study, it can be said that there a lot of cultural differences between Australia and Japan. Such cultural differences can have high level of influence on Wesfarmers, while managing the employees in Japan subsidiary. Wesfarmers in Australia mostly follows centralized power distribution system, whereas Japanese organizations usually follow decentralized power distribution for equal power distribution among the employees. Hence, Wesfarmers should use decentralized and formal organizational structure for managing the employees both in Australian and Japan. On other hand, the organization uses masculine organizational culture in Australia, which can be quite different from the Japanese subsidiary because of their feminine organizational culture. Hence, the organization should provide adequate promotional opportunities to the female employees of Japan subsidiary for perfectly managing the employees. The job market of Japan is full of more highly educated and skilled employees as compared to the job market of Australia. Such highly educated and skilled employees demands high salary structure and promotional opportunity to the employers. Hence, the human resource managers of Wesfarmers should use higher compensation strategy and succession planning for managing the employees of both Australia as well as Japan subsidiary.

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