GLOBALISATION AND THE MODERN ORGANISATION: Effects Of The Race To The Bottom Phenomenon And The Role Of Managers
Table of Contents TOC \o “1-3″ \h \z \u
1 Introduction
2 Globalisation: Driver of the Race to Bottom Philosophy
3 Major Motivators of the Race to the Bottom
3.1 Based on the Market
3.2 Based on the Incurred Cost
3.3 Based on Competition
3.4 Based on the Government
4 Effects on Human Resource and Employment
5 International Human Resource Strategy
5.1 Localisation
5.2 Global Integration
6 Human Resource as the Basis of Success in Competition
7 The Emerging Role of Human Resource Managers in the Globalised World
7.1 Importance of Qualification
7.2 Significance of Experience
7.3 Changing up the Strategies
7.4 Imposing equity through an Appraisal System
7.5 Shift towards performance appraisal
8 Conclusion
9 References
1 Introduction
Conventionally, the concept of globalisation has constantly been tied up with the workings of trade and commerce. However, globalisation is not limited to the said items. To date, the principles and values of globalisation are highly ingrained in the operations of the common state. It affects the social, political and economic aspects of the nation. The implications in the social institutions of the state are manifested in numerous works in sociology. For instance, the theory of division of labour and its effect on the social organisation in the world are among the more obvious implications of globalisation. With respect to the economic effects of globalisation, certain realities are created. For instance, multinational corporations have become intensely been powerful in the recent years. The underlying reason is that the emergence of globalisation has made those who possess capital as powerful inherently. In the case of the political implications of the globalisation process, there is a trend towards empowerment on the part of non-state entities. For instance, non-government organisations have become an alternative for the public as a source of capital and as lobbyists for welfare development. To this end, the power is distributed and not limited anymore to the state alone. In this paper, the implications of globalisation on the area of human resource shall be taken into consideration. More particularly, the existing philosophy imbibed by globalisation, race to bottom, shall be analysed in relation to these said implications on the way human resource is managed.
2 Globalisation: Driver of the Race to Bottom Philosophy
Though globalisation is driven by the intention of growth and development in general, there are seemingly adverse effects of such phenomenon. As a general rule, trade is encouraged and liberalised in the implementation of globalisation principles. (Brueckner 2000, 505) However, there are accounts of an existing paradox maintaining that the encouragement of free trade also induces the lowering of regulatory standards such as taxes and other barriers to trade. This is collectively known as downward harmonisation, or more commonly known as race to the bottom. The more evident repercussions of such race to the bottom are the increase of poverty as triggered by unemployment and underemployment.
The major implication of the downward harmonisation is seen in a couple of scenarios. (Dye and Sunder 2001, 257) First, in the weak scenario, the countries with higher economies will be encountering some severe issues in its labour market. This is because the existence of globalisation has prompted the state to implement a set of labour standards that is far from adequate to meet the demands of the market. The threat lies on the competitiveness of the costs of labour with reference to other countries. On the other hand, the strong form of race to bottom theory indicates that the emergence of globalisation shall place a semblance of competitive erosion with reference to the policies concerning labour everywhere in the world in order to agree with the demands of the market, including those in states with high economies.
3 Major Motivators of the Race to the Bottom
Even though the concept of globalisation, hence race to the bottom, is considered as a buzzword in the realm of business and trade, it is far from being a new concept. There are accounts of early civilisations attempting to treat the world as a single market by implementing a semblance of some integrative acts in terms of business activities. It may have been regarded as a recent concept because it has recently become much easier to transact in an international scale as provided for by new technologies. (Stewart 1993, 2039) Nevertheless, globalisation has existed long before the internet has been discovered. In fact, there are studies that point to the general drivers of globalisation. These are stated in the discussions below.
3.1 Based on the Market
First and foremost, possibly the primary driver of the race to bottom philosophy is seen in the market. Countries tend to seek a fine union of income in their operations and pursuit of economic development. This is seen in the case of regional blocs that double as trading partners as seen in the case of the European Union. (Molle 2003, 124) In the same manner, one of the similar drivers anchored on the market is the harmonisation of the existing lifestyles. Going back to the example, the European Union has consistently harmonised their lifestyles by initially establishing a single currency and consequently allowing the member states to move and trade freely in the continent. Added to these observations is the manifestation of the organisation changing its role as the provider of goods to the being consumers. This is explicitly seen in the case of labour as companies tend to fit in the role of consumers as they search for the most cost effective state holding the best labour force.
3.2 Based on the Incurred Cost
In connection to the previous driver, the incurred costs of the organisation are also a motivator of the race to the bottom. For instance, companies tend to search for states where they can achieve their economies of scale. (Aman 2001, 1477) This means that companies constantly search for making their overhead costs as low as possible. In the same manner, costs pertaining to transportation also play a role in the proliferation of race to bottom philosophy. The international organisation looks for states which have a strategic position in a particular market. For instance, companies tend to choose to operate in Southeast Asian countries not only because of the significantly lowered labour costs, the countries in that region gives the company accessibility to ports, air freight and even possess commendable infrastructure that supports IT technologies. (Gonzalez 1999, 140) In line with this example, another cost driver for the race to the bottom philosophy is the appearance of countries that are considered as newly industrialised. These are states that have consistently performed well in their operations and has eventually revitalised their individual economies to be a brewing force in the international setting. Some examples of these newly industrialised countries include Malaysia, South Korea, and Singapore.
3.3 Based on Competition
Competition among countries is also a recognised driver for this philosophy of race to the bottom. This is where the paradox of globalisation is manifested explicitly. In this driver, it recognises there are newly industrialised states that tend to have become a contender in the economic standing in the world. It is this desire to achieve more in the market and in the international setting, particularly in recovering capital for the developmental efforts of the state, the state is willing to significantly lower its barriers for trade and install policies that encourage free movement of goods in their market. (Wilderom, Glunk and Inzerilli 1996, 3) This is seen again in the context of the European Union and the World Trade Organisation. Up to this date, there are numerous states that seek membership and accession from these trading blocs and international organisation. This is basically fuelled by the assumption that in joining such organisations and trading blocs, these states are able to gain access to a network in an international scale. This translates to more opportunities for capital accumulation as states become interdependent of each other. It is this creation of global strategic alliances that prompts states to compromise the policies towards a downward harmonisation to gain the favour of international companies that are the main source of capital for the said states. (Wilderom, Glunk and Inzerilli 1996, 3)
3.4 Based on the Government
It is important to highlight that such drivers discussed above are not going to materialise without the political will in such states. This brings into the fore the final driver of race to the bottom phenomenon brought about by globalisation: the government. (Aman 2001, 1477) The intent of the government, particularly the leadership of a particular state which may be manifested on the ruling party or the regard of the incumbent political status, affords the realisation of the race to the bottom philosophy. For instance, there are government owned enterprises that afford services to the public that tend to succumb to privatisation. (Gonzalez 1999, 140) There are even circumstances that such government owned corporations tend to consequently be operated by foreign companies winning the bid to such operations. This then provides a manifestation of a race to the bottom where governments lose power and hand it over to private entities.
4 Effects on Human Resource and Employment
There is an apparent constant change in the constitution of each and every economy in the world to date. This is caused by the emergence of globalisation and implementation of its principles in their daily operations. One manifested change in the constitution of the modern organisation is that they tend to shift to a more customer-centric model of operations. (Ojah and Monplaisir 2003, 457) Looking at this tendency it also caused a subsequent change in the process with the demand for highly skilled employees increase. Admittedly, it is arguable whether or not globalisation did trigger such changes in the global setting. However, it is the existence of globalisation that triggered the uncompromising pace of today’s industries. This caused these changes and companies have to adapt in a similarly rapid pace. Some may even argue that achieving the ends of these developments, particularly of acquiring skilled labour and shifting to a more customer-focused operations, has been facilitated by globalisation itself. Without the consequent development in technology and information as well as the proverbial race to the bottom mentality imposed to a good number of countries, then companies today would have a hard time finding ways to improve their standing in their respective industries.
However, like any type of concept introduced in society, there is also an existing dark side of globalisation. (McIntyre 2001, 447) For instance, there are those who claim that the development imposed by globalisation is not equally distributed to all the states in the world. This means that some countries may encounter gains, but some countries may not even be affected by the process. This is the reason why there exists the notion of race to the bottom in the case of globalisation. Countries compete among themselves on who will have the lowest tax rates or tariff or any more barriers to market so as to appear appealing to the major multinational corporations.
One clear example of the negative effects of race to the bottom strategies is unemployment. In economics, unemployment is explained as the disequilibrium in the wages existing in the country and the actual supply of labour. (McIntyre 2001, 447) The problem in the context of globalisation, dealing with these components in any other elements of the economy is to impose some form of flexibility measures. In simple terms, the state would have to lower the existing price of certain services or commodities to deal with the existing demand. However, employment and labour is significantly different from the rest. Flexibility is considered voluntary in the context of wage adjustments. (Mittelman 2002) This means that lowering of the existing wages would depend on the cooperation and approval of employees and their respective labour union. In reality, such negative adjustments in wage would never happen. The labour unions will vehemently toil against such proposal. The paradox is that those that do not cooperate will have to be content with being severed from any employment.
5 International Human Resource Strategy
There is also another paradox in the emergence of globalisation and internationalisation in modern business. (Dye and Sunder 2001, 257) The pursuit for competitive advantage has created this phenomenon. Basically, this paradox is between the localisation of operations and international integration among multinational companies. This human resource strategy is discussed in the following parts of the paper. In its simplest terms, the strategy involves the pursuit towards broadening the scope of the operations of the modern corporation and at the same time acquires a larger market share in the respective markets that they intend to penetrate. This is not only intimated in the case of marketing of the company, this phenomenon is also implemented in the case of human resource management of the company. There have been reports indicating that multinational companies tend to employ personnel from the local applicant pool. This is manifested in the case of export processing zones all over the world. (Hawthorne 2001, 69) Multinational manufacturing companies tend to go to states where labour is cost-effective hiring local employees. Initially, these companies use expatriates to oversee the operations of the organisation. Eventually, there have been accounts that local management staff take over as soon as they learn the ropes of the operations. The following discussions shall present such strategies in a more detailed manner.
5.1 Localisation
Localisation indicates the corporations’ use of local resources to maximise their operations and at the same time minimise their costs. In a sense, it indicates the company’s adoption of local resources and integrates it to their own individual structures. In this type of strategy, a couple of prevailing models are in play: the international strategy and the multinational strategy. (Roth 1992, 533)
The international strategy differs slightly on the multinational strategy. The international strategy is considerably less effective on the part of big businesses. In the same manner, it could be maximised when there are not much of a foreign business that exists in the operations of the company. (Roth 1992, 533) This means that even though the operations of the company may well be overseas, there are fewer nuances that could affect the very minute operations of the organisation. This is manifested in cases of small industries that sought to operate in the European Union or American companies seeking to operate primarily on English speaking countries. This is important because the flow of knowledge is the key in implementing an international strategy. The data coming from the headquarters are imperative to the operations of the individual local affiliates.
On the other hand, the multinational strategy is highly effective on cross-border operations. In this model, autonomy is the key element in its operations. (Birkinshaw 1996, 467) The individual affiliates of the organisation specified in particular markets hold decentralised decision-making practices. This is seen in the case of the fast food industry, particularly McDonald’s. In this case, standardisation is the key element in the operations. This is advantageous for the organisation because the demand for the employees on learning and training are low. In this context, the organisations tend to incur a much lesser coordination cost.
5.2 Global Integration
Global integration possibly grabs the heart of the globalisation. It is seen in organisations who engage in expansion procedures to some other markets aside from the ones they already own. (Kiim, Park, Prescott 2003, 327) This strategy is implemented in a couple of ways, through a global strategy or a transnational strategy. Although there are studies that may have used the two terms interchangeably, these two concepts are entirely different. For instance, the global strategy is primarily a model of global integration that focuses highly on the central office of the organisation. This means that the operations tend to highlight the centralised decision-making process in this strategy. Such operations of this calibre are manifested in the case of retail companies like Procter & Gamble. (Duchac 1998, 419) The products that they sell in the market are primarily the ones that the central offices have approved prior to its market launch. The problem in this case is that the company considerably disregards the implications of local responsiveness. The customers’ demands are not that important to the company because they themselves create demands with the use of top rate marketing.
The transnational strategy on the other hand tends to use an amalgamation of all the potentials that globalisation offer. (Rugman and Verbeke 1998, 115) This is seen primarily in cases of manufacturing organisations. They have the propensity to take advantage of the race to the bottom philosophy of developing countries by offering them foreign direct investments. These investments then answer the need of the state for employment and capital. It uses a localised approach in employment and allows the local managers to learn the tricks of the trade. Upon consideration of these elements, it appears that cost of the coordination between the affiliates and the central offices may well be high.
6 Human Resource as the Basis of Success in Competition
Traditionally, there are factors that contribute to the overall success of the organisation. These include the technology offered by the company, the existence of a protected market, accessibility of the financial resources, and the acquisition of economies of scale. (Kim 1999, 227) Having these elements operating in unison positively favours the company. However, with the emergence of globalisation, the technology offered by a particular company can be developed and increasingly upgraded by other companies in some other parts of the globe. In the same account, financial resources can be acquired though different financial institutions that offers such lending services.
Nowadays, the modern organisation has taken steps in making such elements less significant. There have been reports indicating that the current determinant of success in organisations tend to focus more on the internal environment. (Kim 1999, 227) More particularly, organisations acquire success if only their operations work effectively and efficiently with the help of their personnel. Hence, the emerging globalisation and consequent principles of race to the bottom tends to highlight the ability of the organisation to ensure that their employees are learned and skilled. In keeping with this criterion, the company will be ensured that the organisational goals are easily achieved. Organisational literature intimates this phenomenon as the shift towards the improvement of the “soft” skills of the organisation. (Kim 1999, 227) In its simplest sense, the company that has the least wastage and those who could get it right the first time will be able to increase their productivity without the threat of incurring additional costs.
7 The Emerging Role of Human Resource Managers in the Globalised World
The discussions above have explicitly stated the effects of globalisation and the consequent race to bottom philosophy on the modern organisation. (Harvey, Speier, Novicevic 1999, 38) Added to the context provided for in the said discussions is the continuing change in the environment of the organisation, both internal and external. In this regard, it shows that those that handle a particular position in the company would have to step up. These individuals include the managers of the organisation. Their position is very vital as they tend to become a conduit between the upper management and the rank and file. They also have a strategic position and a set of roles that makes them the appropriate change agents in the organisation. As discussed above, the modern organisation is in constant change. This also proves the importance of managers as they are the ones who will have to usher the organisation in these constantly vulnerable state. This is done primarily by imposing some form of flexibility and practicing alertness in their every operation. (Lipiec 2001, 137)
More particularly, the human resource managers have to similarly step up in this situation. (Harvey, Speier, Novicevic 1999, 38) There have been accounts indicating the need for human resource managers to act more as experts in determining the performance of the individual employees. In the same manner there are those that indicate that they should be able to consistently realise the existing behaviour of the organisation. This is to facilitate the proper course of action that they require particularly in the way operations are conducted and how collaboration from the overall personnel is ensured.
7.1 Importance of Qualification
In the case of qualification of the managers, it is of great importance for organisations that operate in an international context. This is because all the best qualified managers are considerably scarce and head hunters are consistently on the prowl for the best possible person. (Welbourne 1995, 30) It is therefore imperative for the organisation find the initiative to establish veritable management development areas where the responsibility of recruiting, internally or externally, of individuals with high potentials in holding a leadership position for the company. In the same manner, the company has to guarantee that the selection process is approved to their demands and that the best possible person for the job is selected. (Chiavenato 2001, 17) Otherwise, the company would find themselves in a very steep and slippery slope especially in the existing demands of the external environment.
7.2 Significance of Experience
Though there have been a good number of reports in the organisational literature highlighting the positive implications of recruiting internally, some other facets of management is held highly than this manifestation of loyalty. (McHugh 1997, 44) Specifically, experience in the similar field is required. More especially is the fact that the experience is regarded more on the case of international operations. This is because it would be rather easy for the said experienced manager to recognise a particular situation and resolve it opportunely as he may have encountered it in some way or another.
7.3 Changing up the Strategies
It is advisable for the organisation to find ways to improve the operations of the organisation. The changes imposed by the emergence of globalisation have considerably increased the pace at which the company itself change. Studies have indicated that the improvements held by the company shall be ensured if an integrated scheme of human resource management is implemented. (Levy, Beechler, Taylor, Boyacigller 2007, 231) This means that the human resource managers will have to implement a comprehensive system that will similarly resolve the values of the organisation. This is done be imposing some changes in the more basic human resource functions of the organisation. Specifically, the company is set in making their appraisal system and compensation system fit the outcomes on which the company intends to achieve.
7.4 Imposing equity through an Appraisal System
The first thing that a human resource manager should do is to establish equality throughout the organisation. This means that every individual employed in the organisation should be given what is due to them. (Hannon, Huang, Jaw 1995, 531) Hence, if a person is as hardworking as he declares he is, then he should be rewarded for being one. In the same manner, someone who appears to be operating below par of the standards of the company should likewise be given notice. All these are done by installing an appraisal system that will measure the qualities, behaviour, and the capacity of the individual in relation to their respective jobs. (McHugh 1997, 44) One must realise that installing such as change in the organisation doesn’t only implement a new system, it also triggers a change in culture of the organisation as the employees will have the tendency to be more competitive once it is implemented. In any case, the organisation will consistently be at the winning end.
7.5 Shift towards performance appraisal
Changes in the organisation are inevitable. The company will have to consistently sustain their advantage over the other players in the industry. As stated in the earlier parts of this study, the managers should also be given ascendancy. This is manifested in the shifts of the performance and compensation systems in the organisation. (Levy, Beechler, Taylor, Boyacigller 2007, 231) It is not enough that the managers are empowered or given a prominent parking space in the company compound. They should be given some other form of incentive that will double as a means of challenging them into performing in a much higher level for the organisation. For instance, there are companies that operate in the international setting that provide for their employees and managers some level of basic pay and a concurrent commission system. This also indicates a shift towards a more performance-oriented appraisal system.
8 Conclusion
The emergence of globalisation has considerably changed the modern organisation. Both positive and negative implications, the modern company has to take into consideration the imposition of flexibility. In the same manner, companies have to take into account internal and external environment. This is done by giving precedence to the actual human resource of the organisation. The better the skill level of the personnel of the company, the possibility of the company of realising its organisational goals increases. In all these instances, the company must also recognise the fact that the human resource managers would be considerably handy in imposing control and facilitating the modern company in the constantly changing environment on which it operates.
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