Standardization and localization are two common global strategies which multinational enterprises adopt and implement to promote the success of their global operations. The standardization focuses on achieving the highest level of profitability as possible by taking advantage of location and scale economies. Standardization is specifically characterized by little customization (Shaohui & Wilson, 2013, p. 398). Through standardization, multinational enterprises are able to address the pressures of cost reduction, especially when the level of local responsiveness is low. On the other hand, localization focuses on customization as the preferred strategy of increasing the profitability of a multinational enterprise. When the needs of customers vary significantly, multinational enterprises find it necessary to implement the localization strategy in the management of global business operations (Cogin & Williamson, 2014, p. 702). This paper presents a discussion of the issues that are related to the implementation of the standardization and localization strategies by multinational enterprises with a goal of demonstrating how the two strategies manifest themselves in human resource management practices among international companies.
The implementation of global strategies by multinational enterprises is often informed by the interplay between localization and standardization. Most multinational companies are forced to choose between localization and standardization or strike a balance between the two strategies. In doing so, the drivers of two strategies are considered in the implementation of human resource practices within the international business environment (Gomez & Sanchez, 2005, p. 1848). For instance, multinational enterprises consider their business strategy and structure in order to determine whether or not it is appropriate to standardize their human resource management practices. most companies which operate within the international business climate seek to align their international business strategy with their human resource practices because they understand that their success within the international business environment depends on the input of their human resources, including skills, cultural awareness, innovation and competencies in production and service delivery (Pudelko & Harzing, 2008, p. 395).
The organizational structures of multinationals also drive the adoption and implantation of a standardized human resource management strategy. Standardization is mainly aimed at supporting efficient organizational structures. The age and level of maturity of multinational enterprises within the international market are other important drivers for the standardization of human resource management practice (Dowling, Festing & Engle, 2013). For example, multinationals which have operated for a long time within the international market and achieved the maturity stage of business growth are more likely to run standardized human resource practices. The standardization of international human resource management practices is an important motivational issue within multinationals because it allows employees across the world to benefit from standardized compensation and benefits systems (Lertxundi & Landeta, 2012, p. 1788).
Corporate culture is an important issue and driver of the standardization strategy among multinationals. The multinational enterprises which standardize their operations and human resource management practices seek to implement a uniform corporate culture. For instance, multinationals which implement the culture of innovation across their international supply chains often standardize their human resource practices. This is aimed at ensuring that all business operations are run on the basis of same values and beliefs (Pardo-del-Val, Martínez-Fuentes, López-Sánchez & Minguela-Rata, 2014, p. 829).
The competing drivers of localization is an important issue that multinationals must consider in the implementation of effective and successful human resource management practices. The institutional and cultural environment of the host country is among the most important drivers of localization (Mendenhall, et al., 2013). Therefore, a multinational may choose to localize rather than standardize its human resource practices when the institutional and cultural environment of the host country is a direct opposite of that within the home country. In addition, the mode of operation within a specific international market drives the selection of a global strategy (Parry, Dickmann & Morley, 2008, p. 2025). The subsidiary role of a multinational may mandate it to localize its human resource practices so that it would align them with its business partners within the host country. From these illustrations, it is evident that the tradeoffs between localization and standardization are based on the need of a company to survive or remain competitive within its international business environments.
The issues that are related to the implementation of standardization and localization global strategies are effectively addressed when multinational strike a balance between these strategies (Wocke, Bendixen & Rijamampianina, 2007, p. 830). This including addressing the challenges of a global code of conduct regardless of the fact that it is used as the most preferred tools of controlling the behavior of employees within global operations. Furthermore, striking a balance between standardization and localization requires that multinational enterprises determine the strategic importance of international human resource management approaches, such as offshoring and the associated implications on the practice of human resource management (Pudelko & Harzing, 2007, p. 536). The other issues that multinational companies must address include comparing international markets in terms of their appropriateness for the offshoring human resource management approach. Through a comparative approach, multinational enterprises are able to determine the most suitable global strategy for the specific markets which they target in their international expansion.
The competing goal of implementing a global mindset and the need to become responsive to the local business environment is a common challenge for multinational enterprises when they need to select the most appropriate global strategy (Dowling, Festing & Engle, 2013). This means that the conflicting aims of standardization and localization must be addressed by multinational enterprises in order to support sustainable human resource practices across their global supply chains. Standardization is preferred because it promotes consistency and transparency in human resource practices. On the other hand, localization aims at respecting local traditions and culture. Therefore, multinational enterprises are forced to evaluate the comparative benefits of consistency and respect for local traditions in determining the most appropriate global strategy that they need to implement within a specific international market (Shaohui & Wilson, 2013, p. 402).
Standardization also aims at achieving ease of administration through effective and efficient human resource practices within international organizations. However, the competing aims of localization, such as the need to adapt to the policy and regulatory frameworks and institutional requirements within the hosting country must be considered by multinational enterprises (Jun, Jiang, Li & Aulakh, 2014, p. 708). This consideration is important in ensuring that the need for ease of administration and efficient human resource practices does not conflict with policy and legal provisions and institutional requirements of the host country (Mendenhall, et al., 2013).
Standardization is generally an effective global strategy because it creates a sense of equity in human resource management or practices. However, the drivers of localization, such as the human resource practices and educational systems of the host country may affect the extent into which a multinational is able to implement equitable human resource practices (Festing, 2012, p. 38). The educational system of the host country will influence the qualifications of human resources and therefore impact on the aims of standardization, including the creation of a sense of equity in human resource practices. Furthermore, the expectations of employees and workplace practices which characterize the host country are important issues that must be considered by multinational enterprises in order to strike the most appropriate balance between standardization and localization of their human resource management practices (Jun, Jiang, Li & Aulakh, 2014, p. 707).
The level of interaction between the host country’s culture, the home country’s culture and corporate culture is another important issue which influences the adoption of a specific global strategy in human resource management. Multinational enterprises seek to standardize their global human resource practices and strategies through a uniform appraisal system, staffing criteria, development or training programs, corporate code of conduct and staff rotation (Shaohui & Wilson, 2013, p. 398). This forms of standardization are however possible when the three aforementioned cultures interact. This is because when the subsidiary role of a multinational enterprise is not aligned with the culture of its home country, then it is more likely to adopt a localization strategy for its human resource management and practices (Thite, Budhwar & Wilkinson, 2014, p. 922).
The implementation of standardization strategy in the human resource management and practices of multinational enterprises is based on the understanding that the work behavior that employees exhibit is generally determined by culture. For instance, the expectations of employees and their role definition is significantly influenced by their cultural norms (Lertxundi & Landeta, 2012, p. 1789). The superiority of corporate culture over the culture of the host countries of multinationals is an issue of debate. This is because many multinational enterprises implement the localization strategy regardless of the fact that their value for corporate culture is maintained. Therefore, standardization is associated with the implementation of common practices in human resource management but this does not translate to shared values among employees who work in different cultures (Mendenhall, et al., 2013).
The mode of operation of a multinational enterprise is a significant issue to consider because it has a direct impact on human resource management practices. Therefore, the choice of a global strategy between standardization and localization is defined by the mode of operation that a multinational enterprise applies within specific foreign markets (Dowling, Festing & Engle, 2013). The issues of control and ownership vary depending on the mode of operation in international business. For instance, acquisitions often limit the ability of a multinational enterprise to transfer technical expertise and knowledge, systems, management knowhow and human resource practices. In such a mode of entry, localization becomes the most preferred global strategy or the management of human resources (Welch & Björkman, 2015, p. 303).
Multinationals should consider their mode of entry when making decisions on their human resource practices because modes, such as whole owned subsidiaries, create more room for standardization while other modes, such as exportation, limits standardization (Pudelko & Harzing, 2008, p. 396). Furthermore, government support is another issue to consider in the adoption of an international human resource management strategy because some governments support expertise and training and management contracts. It is therefore notable that standardization of international human resource practices depends on the political and legal environment and the receptivity or ability of the local work force to accept and adhere to corporate behavior and norms (Gomez & Sanchez, 2005, p. 2990). Cost considerations are also used to assess the relative appropriateness of standardization versus localization of international human resource practices of a multinational enterprise.
In conclusion, the drivers of the global strategy are important issues in international human resource management because they determine whether a multinational enterprise will adopt and implement the standardization strategy or the localization strategy. Multinational enterprises must address the competing goals of standardization and localization of their international human resource practices so that they would strike a reasonable balance and implement the most effective approach in managing employees across an international supply chain. The goals of standardization which are considered in the choice of an international human resource management strategy include consistency, a sense of equity, transparency, ease of administration, effectiveness and efficiency. However, these goals should be balanced with the motivations of localization, such as the need to respect the local culture, adaptation to legal and policy frameworks of the host country and the alignment of the international human resource practices with the local human resource practices, the education system and the expectations of employees within a specific foreign market.
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