How to Form HR Policies of Multinational Subsidiaries?

In modern business era firms go beyond their geographical boundaries and start operations outside their home country by setting up subsidiaries. A firm which operates in more than one country is known as a multi national company (MNC). When they enter into multi national operations they face many challenges such as managing human resources (HR) and managing their marketing activities. In this tutorial we focus on how can a multinational subsidiary form their policy and practices on HR management.

Multi national subsidiary (which is situated in the host country and separated from its parent company in home country) can formulate their HR policies and practices based on 04 methods and they are explained below:

Method 01

This is where the HR policies and practices are formulated at the corporate head quarter at the home country and transfered to the subsidiary located in host country. Transfered HR policies are implemented at subsidiary without any modification and this method is only acceptable if there is no/little cultural distance between home and host countries. As an example, if a USA (home country) based firm sets up a subsidiary in Canada , they will can to to adopt this strategy and transfer HR policies from USA to Canada as the cultural distance between two countries are low.

Method 02

HR strategy can be formulated locally at the subsidiary situated in the host country according to the culture and institutional factors of the host country. This method is used when there is a high cultural distance between host country and home country so that the practices of home country can not be applied in the host country. As an example, if a USA (home country) based firm sets up a subsidiary in China, they will have to to adopt this strategy and formulate HR policies at Chinese subsidiary according to Chinese culture as the cultural distance between USA and China is high.

Method 03

As the method 03 the subsidiary can use mix of method 01 and 02. A part of the policies can be formulated at the head quarters and they rest can be formulated locally. As an example, if a USA (home country) based firm sets up a subsidiary in Sri Lanka they can formulate training and development methods at USA and directly implement it st Sri Lankan subsidiary and recruitment and performance appraisal methods can be developed locally based on local culture.

Method 04

As the 4th method the firm can adopt a method where part of the HR policies are formulated locally and the rest of the policies are adopted from the corporate headquarters with adjustments to suit local needs. The difference between method 04 and 03 is that in method 03 there are no changes made to what is been adopted from the parent company but the method 04 requires adjustments to be made to transfered policies to suit local needs.

Note of Credits : This is article is based on a lecture done by Dr. Mahesha Samaratunga at APIIT-Sri Lanka on International Human Resources Management on 10/12/2010

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