STRATEGIC MANAGEMENT OF HUMAN RESOURCES FOR GLOBAL COMPETITIVE ADVANTAGE.

Abstract

This article extends the literature on the role of human resources in global competitiveness by focusing on the ability of transnational firms to create a sustainable competitive advantage through the strategic management of their work force. We focus on the ability of managers to strategically draw from multiple human resource labor pools, creating a competitive advantage for transnational firms vis-a-vis domestic and multinational firms. A model, which extends the resource-based view of the firm, is developed.

Strategic Management of Human Resources for Global Competitive Advantage

Recent conceptual and empirical work has focused on how firms go about developing and maintaining a competitive advantage(1) (Barney, 1991; Lawler, 1992; Lawler, 1996; Peteraf, 1993; Wernerfelt, 1984; Wright, McMahan & McWilliams, 1994). This focus on competitive advantage requires additional consideration in light of the increasingly global nature of competition, as evidenced by surveys of U.S. business. Twenty-six percent of U.S. managers surveyed indicated that their companies had recently expanded internationally. The percentage increased to 45 for firms with 1,000 or more employees (Kanter, 1991). The rise in U.S. exports is additional evidence of the growing importance of global competition. Exports currently account for 11 percent of the Gross Domestic Product of the U.S., and have been growing at a rate of 12 percent a year since 1987 (Norton, 1993).

One of the keys to successful competition in the global market is the effective deployment of human resources to achieve a competitive advantage (Schuler, Dowling & De Cieri, 1993). Much of the research on the role of human resources in global competitiveness has focused on management (Adler & Bartholomew, 1992a; Adler & Bartholomew, 1992b; Bass & Burger, 1979; Doz & Prahalad, 1988; Ratiu, 1983). The effectiveness of management techniques across cultures and the difficulties of adjustment both in the work place and in the social environment have been extensively examined (Black & Porter, 1991; Lee & Larwood, 1983; Mendenhall & Oddou, 1985; Tung, 1981). The role of the remainder of the firm's work force in achieving competitive advantage in the global marketplace has received much less attention. The purpose of this paper is to explore how human resources, defined as the entire pool of employees, constitute a potential source of sustainable competitive advantage for transnational firms.

In order to achieve this aim, we first distinguish transnational firms from multinational and domestic firms. We then use the resource-based view of the firm to examine how human resources can form a source of sustainable competitive advantage for domestic firms (Peteraf, 1993; Barney, 1991; Wernerfelt, 1984). Building on this discussion, we explore the additional ways in which the human resources of a transnational firm can constitute a source of sustained competitive advantage. Finally, we discuss the managerial implications of our analysis.

Levels of Global Competition

Firms differ in the extent to which they participate in global competition. Adler (1991)categorizes firms as domestic, international, multinational, and transnational, depending on the level to which they participate in global competition.(2) Understanding the differences across these categories is helpful to understanding the role of human resources in global competition and the need for human resource management (HRM) systems commensurate with the rigors of global competition.

Domestic. Most companies begin by operating within a domestic marketplace. This entails having all of the firm's facilities, employees, and customers within the boundaries of one country. While employees may differ to some extent in terms of their regional or ethnic cultural orientations, the pool of employees is relatively homogeneous. Thus, it is important to note that firms functioning at the domestic level of participation face an environment very similar with regard to culture, human capital, political/legal systems, and economic systems, although some variation might be observed across states and geographical areas.

International. As domestic markets become saturated, firms often seek other markets for their products. These firms tend to regard their international markets as simple extensions of their domestic operations (Bartlett & Ghoshal, 1998). This usually requires entering international markets, initially by exporting products, but ultimately by building production facilities in other countries. An international firm that is essentially a collection of relatively independent operating subsidiaries is also termed a multidomestic firm (Griffin & Pustay, 1996). The decision to participate in international competition raises a host of human resource issues. One consideration is whether a particular location provides an environment where human resources can be successfully acquired and managed.

Multinational. Whereas international firms build one or a few facilities in another country, firms become multinational when they build facilities in a number of different countries, attempting to capitalize on lower production and distribution costs associated with different locations. Multinational firms are sometimes referred to as global (Bartlett & Ghoshal, 1998) because they tend to view the world as a single market and strive to provide standardized goods or services to meet the needs of all markets simultaneously (Griffin & Pustay, 1996). The lower production costs are gained by shifting production from higher-cost locations to the lower-cost locations. The HRM problems faced by multinational companies are similar to those faced by international companies, only magnified. Instead of having to consider only one or two countries' cultural, human capital, legal, and economic systems, the multinational company must address these differences for a large number of countries.

Transnational. Many researchers now propose a fourth level of integration: transnational organizations. Transnational organizations compete on state-of-the-art, top-quality products and services and do so with the lowest costs possible. They try to combine the advantages of global-scale efficiencies (like a multinational firm) with those of local responsiveness (like an international firm) (Griffin & Pustay, 1996). Whereas multinational companies focusing on economies of scale attempt to develop identical products distributed worldwide, transnational companies increasingly focus on economies of scope and emphasize flexibility and mass customization of products to meet the needs of particular clients. Multinational firms are usually driven to locate facilities in a particular country as a means of reaching that country's market or as a means to achieving lower production costs, and then must "deal with" the differences across countries. Transnational firms, on the other hand, choose to locate facilities based on the ability to effectively, efficiently, and flexibly produce a product or service, and to create synergies through the cultural differences. Production and research and development that benefit from uniform standards and scale economies tend to be centralized, whereas marketing and HRM tend to be decentralized to take advantage of local cultural differences (Griffin & Pustay, 1996; Hannon, Huang & Jaw, 1995).

This creates the need for HRM systems that encourage flexible production, thus creating a host of HRM issues. Transnational firms proactively consider the cultures, human capital, political/legal and economic systems to determine locations where production facilities can be located to provide a competitive advantage. These firms have multiple headquarters spread across the globe, resulting in less hierarchically structured organizations that emphasize decentralized decision-making. This results in the need for human resource systems that recruit, develop, retain, and utilize managers and executives who are not only competent transnationally but also are competent in decision-making in flattened, non-hierarchical organizations. In a transnational firm, the HRM issue is no longer where to find the work force but "`what strategic advantages do our labor resources give us?' and `what operations should we be planning in order to apply them most effectively?'" (Mead, 1998, 358).