The Degree of Internationalization in Royal Dutch Shell - Case Study Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2012 Introduction For the past decade, there has been an increase in Internationalization and globalization. Expansion of business operations past national borders needs business structures that are more complex. One of the main crucial determinants of organization’s development in international venture is effective management of human resources. Even though the management of international human resources seems to challenge many international enterprises, it is an essential determinant of success. Majority of MNEs have experienced a lot of difficulties in managing their human resources, thus raising a lot of issues regarding international human resource management. Therefore, the purpose of this paper is to evaluate the degree of internationalization in Royal Dutch Shell with special focus on issues in international human resource management and staffing. Background Royal Dutch Shell was established in 1907 through integration of royal Dutch Petroleum Company and Shell Transport and Trading Company. The integration was through development of jointly held holding companies. However, due to fiscal and tactical reasons, the two parent companies continue operating as two different entities until the year 2005. The entire enterprise was usually addressed as Royal Dutch Shell or the Royal Dutch Shell Group of companies. It was at times referred to as Shell or the Group. Royal Dutch Shell was established during the initial period of globalization. Since its establishment, the activities of Royal Dutch Shell could be seen in almost all parts of the world. The activities of Royal Dutch Shell were widely spread, that is, they ranged from Far East to the Americas. As such, Royal Dutch Shell was the product of the initial global economy. Royal Dutch Shell contributed to the globalization of markets through movement of oil and oil products among countries (Sluyterman, 2009). Shell was active in almost all aspects that relates to oil industry. Its activeness ranged from exploration and production to manufacturing, trading and marketing. Its participation in petrochemicals started in early 1930s. Even if the activities of the company were highly integrated, Shell could sell oil produced by other companies or refine oil purchased from other parties. In early years, Royal Dutch Shell employed workers from various national backgrounds. However, the managerial positions were occupied by individual from certain regions, which were Netherlands and Great Britain. It is believed that by the year 1945, Royal Dutch Shell had organized its international activities by sending individuals from Europe to manage the activities. After the Second World War, Shell was confronted with decolonization. It had to re-evaluate its strategies and policies. Being aware of decolonized nations’ need to develop their national management, shell had to change its strategies and policies and concentrate on training and promotion of local staff. In Indonesia for instance, Royal Dutch Shell established a programme to choose upcoming local individuals and provide them with training or send them abroad for study. Training of local people was good for the business. However, Shell did not continue with the training activity. It preferred circulating a group of expatriates to its enterprises around the world. A group of expatriates would create similar pattern of thought and enhance the interchange of know-how and experience. The expatriates could also develop informal coherence within the immense enterprise (Sluyterman, 2009). Shell attempted to be locally embedded, while at the same time maintaining a powerful international character. It proudly highlighted in its 1969 yearly report that it has employed individuals from sixty different countries, and that the main offices alone have about forty different races. Foreign citizens managed to enter the main group that had approximately five thousand expatriates. However, regardless of this variety, majority of expatriates in shell were either British or Dutch. In the year 1960, expatriates from Dutch and British were about 87 percent of the entire international staff. This figure reduced to 78% in the year 1970 (Sluyterman, 2009). Analysis Human resource management entails the management decisions and practices that directly affect employees in an organization. Therefore, International human resource management (IHRM) refers to the process of procuring, allocating and effectively employing human resources in a multinational organization, while weighing the integration and variation of human resource activities in foreign regions. The main objectives of international human resource management are to minimize the risk of global human resource, to avoid cultural risks and regional disparities and to control diversified human capital. In Shell, for instance, the main objective of international human resource is to work together as an international human resource community, incorporating specialists, strategists, operational experts and generalists, depending on common procedures and shared services so as to maximize the arrangement of corporate strategy and enhance human resource efficiency (Kopp, 2006). In a multinational enterprise (MNE) employees are usually categorized into parent-country nationals (PCNs), Host country nationals (HCNs) and third country nationals (TCNs). Employees categorized under parent country nationals are those who were born and reside in a parent nation. A parent nation is a country in which the organization headquarters is situated. A host country is a nation in which multinational enterprise seeks to situate or has already situated a facility. Employees therefore categorized under Host country nationals are those who were born and brought up in a host country. Third party nationals refer to a category of employees who were not born in either parent or host nation. Therefore management of PCNs, HCNs and HCNs in a Multinational enterprise is what is referred to as international human resource management (Schuler, Budhwar & Florkowski, 2003). There are several issues in International human resource. One of the issues is management of global talent. Management of international talent has proved to be very challenging to many multinational enterprises. Many multinational enterprises do always find it hard to procure, allocate and effectively employ the global talent. It is believed that many multinationals enterprises do always avoid paying attention to management of global talent and instead they tend to focus more on other factors of production such as capital, raw materials and technology. Concentrating on these factors however normally makes the companies compete ineffectively in the global economy. It is believed that, unlike global talent, factors such as capital, raw materials and technology are more likely to be duplicated (Heckman & Lewis, 2006). Shell for instance has always been effectively managing the global talent. Even though the practice seemed expensive, Shell preferred circulating a group of expatriates to its world wide enterprises rather than training local individuals for managerial positions. Innovation is another issue in international human resource. It is believed that to effectively compete in the global market, it is essential for multinational enterprises to employ innovative human resource strategies. Multinational enterprises are expected to go past effective training efforts and education to tactics that incorporate human resource enhancement into wider economic strategies (Jimenez, 2005). Gupta and Singhal (1993) argue that for an organization to be successful, it is essential for it to be innovative and creative so as to develop competitive advantage within the marketplace. Innovation and creativity in an organization assist in effective management of human resources, thus making the creation and marketing of new services and products easy (Daniel & Raquel, 2005). It is believed that people are most crucial resource of an innovative organization. Multinational enterprises with successful innovative human resource management understand how to effectively control, motivate and reward employees from various nations. Innovation is an issue in Shell’s human resource management, particularly to employees’ communication and collaboration. It is believed that innovative communication and collaboration solutions are crucial to 109,000 workers employed by Shell. The 109,000 employees work in more than one hundred and forty nations and territories in diverse locations as upstream exploration sites, downstream refineries and trading floors. Huge projects do always rely on teamwork between the Netherlands, the United States, Nigeria and Siberia. Of late the company has been seen focusing highly on collaboration and partnerships with third-party organizations, which has expanded the user community to 150,000. The face to face and telephone calls meetings have become insufficient. Global recruitment is also an international human resource management issue. It refers to recruitment of persons for international operations. Global recruitment is quite challenging for many multinational enterprises. International human resource managers, in Multinational enterprises, are always expected to identify the international competitiveness of potential applicants during the recruitment process. This however, is always too challenging for them. Most of the recruitment processes are usually done online or through phone calls, thus making it hard for international human resource managers to effectively identify the international competitiveness of potential applicants (Budhwar & Sparrow, 2002). It is also essential for international human resource managers to have international experience and knowledge as criteria in the process of recruitment and selection. Besides, the department of international human resource needs to have excellent idea regarding the availability and skills of human resources in various parts of the world. However, getting the information regarding the skills and availability of human resources in the labor markets of the countries around the world has never been easy. This therefore has always made many international human resource managers to speculate about the skills and availability of labor force around the world, thus making it hard for the departments of international human resource to have excellent idea regarding the world’s labor force. Having poor idea regarding the availability and skills of labor force in different labor markets around the world has resulted in inaccurate prediction of changes in various countries’ labor markets, thus making global recruitment too challenging (Quintanillaa & Anthony, 2003). Shell has really tried to ensure its global recruitment is superb. However, the recruitment process still needs some improvements. Shell normally offers only English-based practices and tools in its staffing services. In Shell group, English is the international language for all professional workers. Shell has really tried to develop strong recruitment process. In order to assist in global recruitment, Shell employs SAP, which is an international software application that gives a common data base and workflow process. Shell offers every potential applicant with international information about the company. It employs its company website as an international posting board for job opportunities around the world. Shell also offers some general information to potential candidates across the world. The information includes the descriptions of job, if a particular position needs international travel, the initial location of the job and how every position suits within Shell. The success of international business depends on the quality of MNE’s human resources and the effectiveness and development of human resources management. International organizations do always face three options as far as staffing of management positions is concerned. The options include the employment of parent country nationals (PCNs), third country nationals (TCNs) and host country nationals (HCNs). The choice of the various options is influenced by a number of factors, both external and internal to the global organization (Brewster and Harris, 2012). Mössler (2003) argues that there are three different sources of workers with whom a global organization can be staffed. An international organization can send workers from its home nation, which in most cases is referred to as expats, expatriates or home country. It can employ the nationals of home country or the natives of the home country. Lastly, it can employ individuals who are neither from home nation or host nation. When the expansion of international firm is at its infancy stage, the management depends heavily on local staff. This is because; at this stage the company responds more to local concerns and customs. As the company continues growing, home-country managers are usually expatriated to improve the operational activities. At later phases of internationalization, various international companies do always find themselves employing various staffing strategies. MNE’s staffing policies can be placed in four categories, which include ethnocentric, polycentric, geocentric and regiocentric policies (Michael, Cheri & Milorad, 2001). Ethnocentric staffing policy refers to the strategy of a MNE to fill crucial managerial positions by hiring managers from parent headquarters instead of hiring the local staff. Many companies prefer hiring parent county nationals (PCNs) to fill the top management positions abroad due to: Technical and business skills of expatriates Capacity to transfer the culture of headquarters to foreign operations Political knowledge of the headquarters ‘arrangement Good communication between subsidiary and the headquarters Absence of host country nationals who are qualified Greater expatriates’ capability to transfer competence from parent nation to subsidiary Promotion and career opportunities for PCNs Individual development However, Ethnocentric staffing approach or employing PCNs have some disadvantages, which include: Parent country nationals will continue experiencing difficulties in international assignments adjustment Uncertain adaptation of expatriates Complex individual planning procedures Interference of expatriates’ private life The staffing approach limits the development of local managers’ career, which can result to low moral and enhanced turnover Parent country nationals are usually insensitive to the requirements and expectations of host country subordinates Expatriates are always costly as compared to HCNs According to Banai and Sama (2000), Polycentric staffing approach refers to a multinational enterprise’s strategy of hiring host country nationals to control subsidiaries in their own nation. It is characterized by absence of personnel’s flow between countries. Polycentric staffing approach or HCNs has various advantages, which include: Elimination of Language difficulties and adjustment problems of expatriates and their families The approach permits management’s continuity in the host nation Hiring of HCNs is less costly The career opportunities and moral of local staff are enhanced There is full support of host country’s government Polycentric staffing approach or HCNs has also some disadvantages. They include: Attaining effective communication among HCN managers at subsidiary level and PCN managers at organization’s headquarters is hard Difficulties in practicing effective management over subsidiaries that comes up when MNEs become loose federation of independent national units with weak headquarters connections Difficulty in coordinating activities between the subsidiaries and headquarters Geocentric staffing approach refers to MNE’s strategy of choosing the best person to occupy key positions, without considering his or her nationality. This approach has two main advantages. It normally allows MNE to create a pool of senior global managers It minimizes the tendency managers’ national identification with organization’s subsidiary units Geocentric staffing approach has three main problems Many host nations normally employ their immigration legislations to demand for the employment of locals The approach can be hard to establish due to enhanced compensation, relocation and training costs Effective implementation of geocentric staffing approach needs a more centralized management of staffing process and minimized subsidiary management’s autonomy may be resented Recommendation It is recommended that MNEs should follow similar methods and criteria when undertaking global recruitment. The recruitment criteria should revolve around the behavior, motivation, skills and personality of potential applicants. The global recruitment should also focus on cultural adaptability, technical competence, strong skills of communication, technical expertise, international experience, interpersonal skills, family flexibility and language skills. Effective management of talent is essential for organization’s development. Therefore, in order to compete well in today’s global market, MNEs need to concentrate more on their human resources management rather than capital, raw materials and technology. MNEs should pay more attention on maximizing long-term retention and use of global cadre via career management. This will assists in developing effective international management teams. MNEs should employ human resource management strategies that promote innovation and creativity. It should employ Human resource planning strategy, performance appraisal strategy, career management strategy and reward systems strategy. The use of human resource planning strategy will assist in evaluating and determining personnel demands so as to develop effective innovative teams. Performance appraisal strategy will evaluate the performance human resources and link it with the profitability of the company. Conclusion From the discussion, it is clear that International human resource management (IHRM) refers to the process of procuring, allocating and effectively employing human resources in a multinational organization, while weighing the integration and variation of human resource activities in foreign regions. It is also clear that Management of international talent, global recruitment and innovation are some of the issues in international human resource management. Many multinationals enterprises do always avoid paying attention to management of global talent and instead they tend to focus more on other factors of production such as capital, raw materials and technology. It is essential for multinational enterprises to employ innovative human resource strategies. Multinational enterprises are expected to go past effective training efforts and education to tactics that incorporate human resource enhancement into wider economic strategies. Global recruitment is quite challenging for many multinational enterprises. International human resource managers, in Multinational enterprises, are always expected to identify the international competitiveness of potential applicants during the recruitment process. This however, is always too challenging for them. The success of international business depends on the quality of MNE’s human resources and the effectiveness and development of human resources management. International organizations do always face three options as far as staffing of management positions is concerned. The options include the employment of parent country nationals (PCNs), third country nationals (TCNs) and host country nationals (HCNs). References Banai, M and Sama, M, 2000, Ethical Dilemmas in MNCs' International Staffing Policies A Conceptual Framework, Journal of Business Ethics, 25, p221-235. Brewster, C, & Harris, H, 2012, International HRM. London: Routledge Budhwar, P and Sparrow, R, 2002, An integrative framework for understanding cross-national human resource management practices, Human Resource Management Review, 12(3), P377–403 Daniel J and Raquel S, 2005, "Innovation and human resource management fit: an empirical study", International Journal of Manpower, Vol. 26 Iss: 4, pp.364 - 381 Gupta, A, K and Singhal, A, 1993, Managing Human resources for innovation and creativity. Read More