HR Implications on the Internalization Strategy - Zara - Case Study Example

BU1005 Business Relationships Human Resource Management Delivery Semester 1 Assessment 1 I confirm that this assignment which I have submitted is all my own work and the source of any information or material I have used (including the internet) has been fully identified and properly acknowledged as required in the school guidelines I have received. Module Tutor [enter module tutor name] Student Number [enter your ‘G’ number’] Word Count [enter your word count excluding Reference List] Executive Summary The paper focuses on the HR implications on the internalization strategy, focusing on a case study on Zara, a fast-fashion company. Internalization comes with some of the challenges to the human experts and departments and some of the challenges include deployment dissemination of knowledge and development of talents across the border (Du Plessis and Beaver, 2008). Zara is one of the companies that have successfully ventured into the international market. Human resource is one of the HR theories that explain some of the ways of motivating employees to work in a foreign land despite the challenges. The major roles of HR include staffing, selection, compensation, training and development, and performance appraisal, which are also covered in this paper. The paper recommends that companies should embrace diversity even before expanding to international market and they should also use polycentric as one of the staffing strategies because of its many advantages. Table of Contents Introduction 4 Background and Context: Zara 5 Strategic Human Resource Management (SHRM): Internalizing Strategies 5 HR Theory: Human Motivation Theory 6 The Role of HR 8 Workforce Planning 11 Summary 13 Recommendations 13 Reference List 14 Introduction Human resource is one of the critical assets that defines the success or failure of an organization. Some of the roles of a human resource department in an organization include recruitment and selection, remuneration, training and development of employees, and performance evaluation (Geiersbach, 2010). Therefore, human resource is important for a business whether it is operating locally or internationally. However, a firm that operates internationally has more challenges when it comes to human resource management compared to local companies. Some of the HR challenges faced by firms that intends or are operating locally include deployment, disseminating knowledge and innovation, and identification and development of talents on a global basis. For a business to have a successful expansion to the international market, therefore, it must have a strategic human resource plan. International expansion of a business has significant implications on HR and in order to address the possible challenges, a business must come up with appropriate HR policies and plans to address the international issues (Geiersbach, 2010). Some of the issues that need to be addressed include the cost of projection of sending an employee abroad, mode of compensation and other benefits, relocation assistance, and family support. A business should also consider the cultural, social, political, and economic factors on the international market it intends to explore. All of the above issues have implications on the HR of a firm. The paper, therefore, discusses the HR implication of an international strategy by specifically focusing on the strategies employed by Zara, Spanish apparel retailer. Background and Context: Zara The paper focuses on a case study on Zara, a Spanish apparel retailer that specializes in designing and manufacturing of cloths. The company is recognized in the regions that it operates as the fast-fashion company because of its ability to come up with new designed items in a short span of two weeks. Zara is majorly based in Europe, but is gradually expanding to other regions like America and Southern Korea. Despite its fast-fashion brands, Zara still manages to charge low prices that make it attractive to many consumers in the market, leading to its competitive advantage in the market. The company relies on information and technology to come up with new items that are tailor-made to meet the desires and needs of its consumers. Some of the internalization theories that Zara has used to venture in the international market include knowledge sharing, resource-base review and psychic distance. The company has used knowledge sharing concept to enhance communication efficiency and effectiveness between it headquarter in Spain and other managers in different parts of the world. Even though local manager are independent, Zara has put in place point-of-sale terminal link local managers to headquarter. It also used psychic distance to ensure gradual venture into the international market, which helped it in understanding the market before embarking on a physically distance market like Greece, South America, and Southern Korea. Like any other country venturing in the international market, Zara expansion to international market came with some HR implications. Strategic Human Resource Management (SHRM): Internalizing Strategies There is a slight difference between SHRM and the normal human resources management. The SHRM focuses on the general performance of an organization and not the individual employees. (Becker and Huselid, 2006) Secondly, SHRM focuses on the functions of HR management that help in solving the problems an organization faces and not the individual role that is emphasized in the traditional human resource management. However, despite the difference, individual employees still have a significant role to play in enhancing the general performance of an organization (Becker and Huselid, 2006). Therefore, in order to boost the performance of a firm, especially when it is expanding to the international market, multinational companies like Zara must ensure that it has a motivated human resource that can help in achieving the objectives of a company. At the same time, it is important to have a highly skilled, knowledgeable, and professional workforce. Companies like Zara can only have a successful international expansion through effective human resource management strategies. HR Theory: Human Motivation Theory Motivation theory is the most relevant theory in the paper because of the complexity and challenges that a company faces in acquiring workforce in new international markets. Employees always find it hard to relocate to other areas due to the economic, social, psychological, and cultural challenges that they have to face. Therefore, Zara has to find a way of motivating its employees to relocate to the new international stores. In addition, it must also motivate the local employees to enhance their performance and productivity. Employee motivation is very important because even staff with the required knowledge and skills will record poor performance if they are not motivated (Riley, 2005). Every individual has some need that he or she strives to meet and failure to meet them leads to demotivation. Some of the characteristics of a demoted worker include poor performance, increased absenteeism, and negligence. Therefore, Zara has to find a way of motivating its employees to be attracted to work in the foreign countries by meeting their needs. According to Maslow, some of the needs that are crucial to an employee include physiological needs, safety needs, love, affection and belonging, and esteem needs (Pardee, 1990). An employee working in a foreign or local country must be able to meet his or her physiological needs like shelter and food, which can be achieved through proper compensation. Safety needs are also important in determining whether a person will be motivated to work in a foreign country. Many people fear working in unsafe environments, which may be a challenge to a company in acquiring skilled and competent employees (Demyen and Ion, 2013). For instance, there are increased cases of kidnapping across the globe, especially in countries like South America, Brazil, Philippines, Nigeria, and Russia. Therefore, companies like Zara must ensure that they meet the safety needs of the employees working in the international markets. It can create safety environment by through salaries, fringe benefits, solving employee problems, and creating a safer working conditions. Moving to a new environment is also associated with social and cultural changes, which may affect the performance of employees (Demyen and Ion, 2013). Affection and belongingness determines the performance of employees and Zara must ensure that it meets the needs by either employing the locals or creative a cohesive working environment. If Zara has to use foreign experts, then it has to find ways of meeting the affection and belongingness needs of employees like relocating an employee with his or her family and encouraging social interactions such as outside social activities and establishing team spirit in the company. In addition, it is important to meet the esteem needs of employees like independence and confidence to motivate them (Salanova and Kirmanen, 2010). Therefore, the success of expansion to the international markets depends on the motivation of employees that will finally determine their performance and the overall performance of the company. The Role of HR The primary role of any human resource department in any organization is to ensure that the human resources that are available supports the goals and objectives of a business (Sparrow, 2006). It is the responsibility of human resource experts in a an organization to ensure that human resources are in line with the strategies that are put in place and they also ensures that employees are productive, efficient, and effective to enhance the general productivity of a firm. Some of the key functions of HR include recruitment and selection, training and development, and compensation. Recruitment and selection is the primary role of any HR department in an organization. It is the responsibility of HR department to find individuals with the right knowledge and skills to be employed in various positions in an organization (Sparrow, 2006). There are three main staffing strategies that HR department can use to select and recruit employees in a foreign country and they include ethnocentric, polycentric, and geocentric. The strategies varies from one industry to another and from one company to another while at the same time they can be used one after another depending on the need and the knowledge and skills that are required. Ethnocentric approach when recruiting and selecting employees in a foreign country refers to a situation where almost all the management positions in an organization are occupied by parent-country national (Sparrow, 2006). The strategy is suitable when an organization wants to maintain its corporate culture, when it wants to expedite the transfer of its key competencies that are possessed by a few individuals, and when there are no qualified professionals to fill the management positions from the host country. However, ethnocentric staffing strategy is expensive, as it involves relocating of a large number of staff from the parent country to the host country. At the same time it hiders the advancement chances available to host country nationals, which can result into resentment, reduced productivity, and demotivation among local employees (Sparrow, 2006). In addition, it is likely to create cultural myopia due to cultural difference in various countries. Therefore, in the case of Zara, it can only employ the ethnocentric staffing strategies when it is still new in the market because it needs to first find the right experts with the required knowledge and skills. It should gradually drop the strategy because it is expensive; it can reduce its performance; can lead to cultural backlash; and can lead to demotion among the local employees. However, Zara can fully adopt the strategy in the host countries where it cannot find the required skills and competency, and when there is a need to safeguard core skills that are crucial for its competitive advantage in the market. The most commonly used staffing in many multinational companies is polycentric approach where firm employs host-country nationals to management its subsidiary while the parent-country nationals occupy the top management positions in the subsidiary (Doornenbal, Stitselaar and Jansen, 2012). One of the main reasons why many companies use the approach is because it is inexpensive, as the company does not need to relocate a large numbers of employees to the subsidiaries. At the same time, polycentric staffing strategy lack cultural myopia, which can lead to many mistakes associated with cultural differences and misunderstandings. However, the strategy is disadvantageous because it can create a gap between the main headquarters and the subsidiaries. But, in the case of Zara, the disadvantage of the polycentric can significantly be reduced because it has effective communication systems between its Spanish headquarter and the store managers. The same communication system can be extended to international subsidiaries to enhance the coordination between the Zara headquarter in Spain and its subsidiaries. It is the best staffing strategy that can be adopted by Zara when it is expanding to international market because it will lead to cultural harmony when it is designing and manufacturing its product. It will also enable Zara to identify with the local consumers who will feel part of the company. Zara will also save a lot because the strategy is not expensive, which can enable it to maximize its profits. Another staffing approach that a company can utilize is geocentric strategy where a company only employs best people with required knowledge and skills regardless of their nationality. The approach seems to be the best because it gives a company an international outlook and it also creates a unifying corporate culture, which can eliminate cultural myopia. However, many companies find it hard to implement the strategy and it is also relatively expensive compared to the polycentric approach (Doornenbal, Stitselaar and Jansen, 2012). Therefore, it is not always viable to many companies, as they have to consider a number of factors that can be time consuming. When selecting people to work in foreign subsidiaries, a company should not only consider the technical knowledge and skills that are required to accomplish the task, but it should also consider the ability to cope and work in different cultural settings with people from different cultures (Doornenbal, Stitselaar and Jansen, 2012). Companies like Zara, therefore, should employ adaptability screening to determine the suitability of an employee to work in a foreign country with people from different cultural backgrounds. Adaptability screening will enhance the retention of employees and their job satisfaction. Therefore, in recruitment and selection, some of the specific factors that a company will consider among the potential employees include technical ability, cross-cultural ability, family requirements, country requirements, and the language. However, a company should put a lot of emphasis on technical requirements because the technical and management skills are the most important requirement that an employee should have (Doornenbal, Stitselaar and Jansen, 2012). A company should evaluate the performance record of potential recruits before employing them. A part from technical skills, the remaining factors should also be considered to determine the adaptability of potential employees. International companies like Zara should ensure that recruitment and selection process leads to competitive advantage by coming up with the best candidates. Workforce Planning In order to ensure that the needs and priorities are in line with those of workforce in achieving the objective of an organization, it is important for a HR department to engage in activities like training and development, performance appraisal, and appropriate compensation (Cotten, 2007). Every country has its own employment rules and regulations that must be followed by companies under its jurisdiction. The compensation should consider the economic situation in the host country. Zara should consider the economic and political situation when it is drafting the compensation policies that it intends to use in the new international market (Cotten, 2007). At the same time, it should consider the compensation trends in the world and that in the local economy to ensure that they can attract the best experts in the labor market. Finding the right compensation is hard when a company is venturing in the foreign market due to the difficulty in accessing compensation data. Therefore, Zara must consider all the important factors before settling in the compensation formula. The right compensation motivates employees, and it ensures that the company does not overspend on salary and wages expenses. Training and development of employees is also important in ensuring that they meet the objective of the organization while at the same time they are boosting their self-esteem. Every business has certain special skills that its employees should have for it to be successful. Companies like Zara that involves in design and manufacturing of products need to train the new employees on certain skills that they need to produce products that are in line with their brands. Therefore, training should be done every time a new employee is recruited (Cotten, 2007). In addition, in order to determine whether a company and its employees are doing the right thing, it is important to engage in performance appraisal, which should be carried out annually. Performance appraisal is challenge in a foreign country due to different cultures and practices. Therefore, it is important to use universal approach that cut across all cultures to ensure fairness and potential conflict that may hinder the performance of a company. Summary There are a number of HR implications on internationalization strategies. Some of the implications include deployment, compensation, dissemination of knowledge, and development of talents in a foreign country. International companies like Zara that have various subsidies in many countries must come up with effective HR strategies for them to be successful. The main HR theory that is associated with internalization is human motivation theory because of phobia to work in a foreign country due to social, political, cultural, and economic differences. The primary role of HRM is staffing and the three strategies that many companies in staffing include ethnocentric, polycentric and geocentric. The most suitable strategy is polycentric because it is the least expensive and it also lacks cultural myopia that may reduce the performance. Workforce planning is also important in aligning the objective of an organization and that of the workforce. Some of the factors to consider when creating workforce plan include compensation, training and development, and performance appraisal. Recommendations First, companies with the intention to expand to other foreign countries should embrace cultural diversity by employing people from different cultures to make it easier for them when they are expanding in foreign countries with totally different cultures. Secondly, MNCs should use polycentric staffing approach in order to minimize the cost of operations and to reduce cultural backlash with host-consumers to protect their reputation and image. Reference List Becker, B.E. and Huselid, M.A., 2006. Strategic human resources management: where do we go from here?. Journal of management, 32(6), pp.898-925. Cotten, A., 2007. Seven steps of effective workforce planning. IBM Center for the Business of government. DEMYEN, T.A.S. and Ion, L.A.L.A. 2013. HUMAN RESOURCE MOTIVATION- PRECONDITION FOR PERFORMANCE GENERATION. Economy Series, p.11. Doornenbal, E., Stitselaar, W. and Jansen, L., 2012. Recruitment & Selection. Du Plessis, A.J. and Beaver, B., 2008. The changing role of human resource managers for international assignments. International Review of Business Research Papers, 4(5), pp.166-181. Geiersbach, N., 2010. THE IMPACT OF INTERNATIONAL BUSINESS ON THE GLOBAL ECONOMY. Business Intelligence Journal, 3(2). Pardee, R.L., 1990. Motivation Theories of Maslow, Herzberg, McGregor & McClelland. A Literature Review of Selected Theories Dealing with Job Satisfaction and Motivation. Riley, S., 2005. Herzberg's two-factor theory of motivation applied to the motivational techniques within financial institutions. Salanova, A. and Kirmanen, S., 2010. Employee Satisfaction and Work Motivation: Research in Prisma Mikkeli. Sparrow, P.R., 2006. Globalisation of HR at Function Level: Exploring the Issues Through International Recruitment, Selection and Assessment Processes. Read More