Globalization and its Impact on Business Environment


By

Ms. Chitra Krishnan
Lecturer
AIBS
Amity University
Noida
 


Abstract

The transformation of present economy from a manufacturing economy to a primarily service economy has increased the importance of knowledge in job performance. As people become the most valuable asset of a firm, there has emerged a new class of highly-skilled knowledge workers. High demand for knowledge workers coupled with their limited availability in the work force has created a 'war for talent' among organizations. With firms competing for skilled workers, employee mobility has increased .Therefore, organizations have to develop new strategies to attract, retain, motivate and develop employees. The role and responsibilities of HRM have become more significant with an increase in the number of knowledge workers, inter-firm competition, changes in technology, and so0cietal and business trends.

Introduction

The shift from a manufacturing economy to a services economy from production of goods to production of ideas, and from the machine age to the information age has been accompanied by many transformations. Rather than producing goods, the service firms produce 'ideas'. Organizations in the 'services era', such as software, financial services, and biotechnology firms, depend on 'intellectual capital'. People create 'intellectual capital' and are therefore, the most valuable asset of a firm. Even the environment within which firms conduct business today is very different and much more complex and dynamic when compared to the environment fifteen years ago. Firms no longer compete or operate nationally only. Organizations are no longer governed by the business, legal and political environment of their own nations only. As the world becomes one global playing field, the environmental changes in countries other than the home country of a firm affect business decision and the performance of firms. Several societal and global phenomena have challenged the management of human resources. Thus, changes in the economic, business, social and cultural environments have brought about a transformation in the HR function and the roles and responsibilities of HR professionals.

Some of the significant environmental trends and changes faced by HR managers that pose major challenges are as follows:

  • Trends in the business environment
  • The changing nature of work
  • Demographic, societal and work-force trends
  • The changing nature of the employment relationship.

Globalization of Business

A major environmental change that has taken place in the last fifteen years is the globalization of business. The world has become a global village and business has become global in character. Organizations are venturing beyond national boundaries in the pursuit of business opportunities. Toyota Motor Corporation makes cars in USA and India, Mc Donald's sells burgers in India and hamburgers in China, and Marks and Spencer's sells products in India. Every other product sold by Wal-Mart stores Inc. is made in India. This is the time when buildings are conceptualized in the US designed in India and built in China. Very recently, Ford Motor Co. (Ford) announced its plans to invest $ 1 billion in products and plants in the Asia-Pacific region in the next few years to maintain its presence in the fast-growing markets.

Outsourcing has made India a Manufacturing hub, especially for the automobile sector; with cheap labour providing one of the competitive advantages. Government policy reforms and growth against an appreciating rupee have also facilitated this trend. Large numbers of manufacturing assembly jobs that require low skills have moved from the US and Western Europe to developing countries like China, Thailand, Malaysia, and India. India's manufacturing and services companies invested $10 billion overseas in 2004. The top 15 Indian IT, software and related companies have invested mostly in developed countries. Like the IT and automobile industries, domestic hospital chains from India, such as Apollo Hospitals Group, Fortis Healthcare and Max Healthcare Institute Private Limited, also have ambitious expansion plans in markets as far away as the US, UK, Mauritius, and South-East Asia.

Multinational corporations require employees who can adapt to different cultures, customs, social practices, values, economic and political systems and management approaches, who can work with other employees from differing backgrounds. This has caused new challenges for HR managers. The HRM function of a company must develop systems that will help individuals from different cultural backgrounds to work together. Human resource managers must ensure that employees with the requisite knowledge, skills, abilities, and cultural adaptability are available so that they may be successful in global assignments.

Foreign investment is no longer something that flows only from a developed country to a developing one. Indian companies are on an expansion drive. Indian business houses, like the Tata Group and firms like Ranbaxy Laboratories Limited (Ranbaxy), Wipro Limited (Wipro), Sun pharmaceutical Industries Limited, Crompton Greaves Limited, Asian Paints, and Cognizant Technology Solutions, have struck merger and acquisition deals world wide to become global players. Acquisitions by Indian companies have now become strategic in nature, by which they have been able to take leadership positions in Asia. The table 1.1 depicts major Human Resource Challenges faced by modern businesses in the present scenario.

Table 1.1 Environmental Trends and Human Resource Challenges

Sr. No.

Environmental Trends

Human Resource Challenges

1.

Business Environment

 

Globalization and increased competition

Managing a global workforce.
Ensuring availability of employees who have the skills for global assignments.
Focusing increasingly on employee productivity to ensure competitiveness.
Ensuring legal compliance when conducting business abroad. 

 

Mergers and Acquisitions

Managing employee insecurity.
Ensuring continued employee productivity.
Developing HR initiatives to manage employee morale.

 

Downsizing

Managing organizational relationship with survivors
Managing morale and commitment of survivors
Providing outplacement services or relocation for employees who lose jobs.
Providing personal and family counseling to employees who lose their jobs.

2.

Changing Nature of Work

 

Industry and Occupational shifts

Managing workforce with flexible working patterns.
Focusing on competencies during hiring process.
Designing incentive based compensation.
Developing proactive employee development programmes.

 

Technological Advancements

Managing a virtual workforce.
Managing employee alienation.
Developing training modules and conducting programmes to provide employees with required skills.
Retraining current employees to mange obsolescence.
Providing work-life balance initiatives.

 

Outsourcing

Manage employee concerns about losing jobs due to outsourcing.
Managing employee morale and productivity.

 

Flexible Work Arrangements

Managing the loss of organizational control over work.
Developing programmes for motivating the flexible workforce.
Developing ways of ensuring commitment of the flexible workforce to the firm.

3.

Demographic, Societal, and Workforce Trends

 

Workforce Diversity

 

Workforce Composition

Devising customized HR strategies for hiring, retaining, and motivating employees belonging to different generations.
Developing life-style driven perks for the new generation employees.
Developing work-life balance programmes.

 

Workforce Availability

Ensuring the availability of skilled talent to fulfill organizational needs.

 

Ageing population and workforce

Finding replacement for retirees.
Managing the demand-supply gap for qualified managerial talent due to a large retiring workforce.
Developing mentoring programmes to ensure the skills of experienced mangers are passed on to new managers.
Obsolescence training and retaining of older employees.
Managing retirement policies.
Conducting programmes to retain experienced employees.

 

Educated and knowledge workforce

Ensuring the continued supply of trained manpower.
Training new hires.
Partnering with universities and developing academic initiatives to meet projected shortage of skilled manpower.
Training employees in computer skills, communication skills, and customer handling skills.
Emphasizing re-training and development activities.

 

Women in workforce

Strategizing to attract and retain educated and skilled women workers.
Conducting programmes for women who opt for career breaks.
Providing facilities such as crèches, flexible working hours, etc.

 

Changing family structures

Developing work-life balance programmes.

 

Global Workforce

Developing diversity training programmes.
Developing HR initiatives directed to workforce diversity.
Identifying and training expatriate managers for overseas assignments.
Developing equitable pay plans for individuals working in different countries.

 

Contingent Workforce/workforce flexibility

Developing systems to motivate the temporary workforce and elicit commitment from them
Helping the temporary employees to quickly adapt to the organization to reach their full potential

4.

Changing Nature of Employment Relationship

   

Offering challenging jobs to employees.
Managing rewards for enhancing employee performance.
Providing opportunities for enhancing skills through training, development, and educational programmes.
Developing programmes for employee commitment.
Understanding value differences across different employee groups and customizing HR programmes.


Source: Agarwala, Tanuja, "Strategic Human Resource Management", Oxford Publication, 2007.

Another recent change faced by HRM in the present business scenario is that of Mergers and Acquisitions. Companies today need to be fast growing, efficient, profitable, flexible, adaptable, and future-ready and have a dominant market position. Without these qualities, firms believe that it is virtually impossible to be competitive in today's global economy. In order to gain access to new markets and fresh ideas, companies often choose to grow via Mergers & Acquisitions (M&A) rather than concentrating their efforts on their own business activities. Such inorganic growth is often viewed as a faster way to achieve growth for the company. Especially in technology driven industries, where growth is often accelerated through increased innovations, and one way for the firms to compete is to align themselves with those companies that are developing the innovative technology. Such alignment is achieved through M&A activities. Successful manifestation of such activities involves complex procedures and processes in order to integrate both organizations and align them as per a common unified objective.

It has created certain problems for an organization. One of the problems associated with M&A's is the retrenchment of staff that becomes surplus due to rationalization of operations. For example, in the financial services sector, M&A activity between 1996 and 2006 caused an aggregate employment decline. Due to M&A, sector experts predicted a loss of more than 300,000jobs in the banking sector between 1999 and 2002. When negotiations for M&A are on, employees of the concerned firms are subject to several rumours that cause insecurity about the future. Thus, HRM is faced with several challenges before, during, and after the M&A decision.

In the present era, the competitive advantage of organizations is linked to 'knowledge'. There is a lot of emphasis placed upon dissemination of knowledge, and knowledge workers within organizations. Therefore, there is an increased focus on management of the knowledge resource in organization. Thus, in the 21st century, the HRM function has a key role to play in shaping the competitive position of the organization. To compete effectively in the knowledge economy, a firm must have what Ulrich calls 'organizational capabilities'.HRM plays an important role in creating, developing, and managing the organizational capabilities that are necessary for competing in the knowledge economy. Human resource mangers have to create effective teams within a diverse workforce; tap talent throughout the organization by recruiting, retaining, and developing people at all levels; build and integrate cultures as mergers and acquisitions become common; and develop employee commitment toward organizational vision. Human resource management is confronted with major challenges in the present knowledge economy. Thus, HRM is no longer simply focused on 'managing people' or confined to traditional HR functions rather; it is now responsible for managing the capabilities within the organization. The Table 1.2 given below elaborates upon the challenges facing HRM in the knowledge economy.

The four major HRM roles in the Knowledge economy are as:-

  • Human Capital Steward
  • Knowledge Facilitator
  • Relationship Builder
  • Rapid Deployment Specialist

Table 1.2 Challenges facing HRM in the Knowledge Economy

* Attracting and retaining knowledge workers, who are intellectual capital of the firm
* Obtaining commitment from workers in the context of a changed employer-employee contract
* Ensuring the availability, development, and utilization of human capital to enhance its value
* Motivating Knowledge workers
* Ensuring maximum utilization of temporary and contingent employees
* Encouraging employees to commit to continuous learning
* Facilitating sharing of knowledge within organizations
* Facilitating work-life balance
* Rewarding Knowledge acquisition and  knowledge sharing
* Enhancing cross-functional team work and team identification
* Creating a flexible human resource management team that sets and supports the agenda for change
* Coordinating between organizational functions.


Source: Lengnick-Hall and Lengnick-Hall 2003

To sum up, the business environment affects the HRM. External business environment includes the political, economical, socio-technological aspects. The impact of external environment affects the internal environment of an organization which in turn, affects the decision-making of the organization. Traditionally, the main aim of organizations was to earn profits. But now modern day organizations have to consider about 'Corporate Social Responsibility' though not at the cost of earnings because earnings are the main source of survival in the competitive market. A smooth and congenial external environment will ensure the smooth functioning of an organization. There is a lot of interdependence between the two. Since the world is now considered as a global village, the integration of global and business environment is very important.

Effect of Terrorism on the Global Business Environment

Terrorism word is almost worn-out, and its tiredness is accentuated by its reappearance. Terror, terrorism, terrorist-the dictionary tell us that words are rooted in fear. T (Terror)-word always affects tremendously the whole world. The sweep of this cruelness has at last provoked us to recognize the enormity of the threat we face as a nation under attack. It has sharpened our perception about national security and the reach of the enemy. In ordinary parlance, it is understood to denote deliberate and systematic acts of murder, maiming of innocent men, women and children designed to inspired fear and instability in the society for political or pseudo-religious purpose, terrorism is a menace that requires a global response. Terrorism came into sharp focus of the world after the terrorist strike at the World Trade Center on September 11, 2001 in the US. Now US are more aware of the problems of terrorism faced by country like India. Terrorism is a global scourge with global effects, its methods are murder and mayhem, but its consequences affect every aspect of the united agenda – from development to peace to human rights and the rule of law. Internationally, we are seeing an increasing use of what is call the "T – word" – terrorism to demonize political opponents. It is broader international agenda need to prevent acts of terror. Universally, acclaimed fundamental rights such as the eight of self – determination or statehood for the suppressed populace cannot be shelved by terming- subjugated people to make room for their own salvation by having recourse to arms. Insurgency and genuine struggle for emancipation from the burden of the subjugators and the armed struggle of a bandaged populace can't be equated by any ethical standard. It must be understood in unqualified terms that brutal force applied to suppress fundamental human rights and liberty can't be successful in defeating the indomitable spirit of a people fighting for justice, fair – play and liberty when they are ready to pay any price for it. The danger from dreaded terrorist, who willing to kill themselves to kill other for what they consider "religiously ordained" is all real for creating disaster of unprecedented scale and magnitude, where religious extreme is glorified or globalised and the local forces of terror can at home and abroad. Terrorist bombs ripped through the commuter train system of India's financial capital here, business executives said the attack would have little effect on India's buoyant economy. During the past 35 years, the world has witness nearly 20,000 terrorist incidents.

Terrorism has an adverse effect on the businesses and economies all over the world. It has no origin in specific nor has its effects upon any single specific nation as such. Rather it is a plague that tolls a major populace like a disaster with irreparable damages to one and all. It affects the working of the whole environment of an economy be it the socio-political, technology, etc environment. It poses a serious threat to the existence of major business houses. The most startling aspect is that one can control to a great extent, the other challenges which tend to be firm-specific but in case of terrorism it transcends firm boundaries (even national boundaries) across the world. In other words, the repercussions posed by terrorism stretch across nation's business environment.  Thus, it raises major concern for one and all including individuals, corporates, and nations across the world. It constricts global expansion of corporates and also mars prospects of the knowledge workers. Not only this it affects an individual's outlook, his aspirations to think and move ahead in life. The following view expressed in Table 1.3 captures the insecurity and threat posed by terrorism for economy.

Table 1.3: Threat posed by Terrorism

     Blasts on
    
* May 13th Jaipur,
     * July 26th Ahmadabad,
     * September 13th Delhi,
     * November 26th Mumbai,
     What Next?? and
     Where??

  • Due to terrorism the normal functioning of an organization is disrupted and this, in turn, affects the prospects of employees therewith (promotions, increments, bonuses, etc.). Not only this, productivity and morale of the employees become very low. Terrorism, thus, destroys the organizations in the most adverse manner; every effort to reconstruct the damage caused is immense and may not be possible. For example, due to attack on World Trade Centre, the foreign investors would not like to cross their national boundaries thereby, hampering the developmental prospects of other nations.
  • Terrorism also affects the interests of not only the employees of an organization but also the stakeholders and investors. It affects the business of organizations for a particular time period. With this the requirement for raw material and other resources goes down and that in turn, affects the business of the entire chain (stakeholders attached). This further discourages the investors coming in the economy and thereby, reducing the money inflow and hence, the purchasing power of economy in an adverse way. This reduces the investment capacity of individuals/groups which, in turn, affects the various sectors of an economy (such as, stock market, real estate and infrastructure, tourism, hospitality, etc.).
  • The destruction is massive – especially of the innocent masses apart from the destruction of an economy's infrastructural facilities (port, buildings, etc), major sectors (real estate, tourism, hospitality, etc) getting trapped in the financial and economic crisis, and image tarnishing of major corporate For instance, due to the 9/11 attacks in US, an investment bank operating in one of the World trade center lost nearly 650 employees.
  • In addition to the above, Terrorism has adverse effect on the psychology of individuals of a nation by creating a sense of insecurity and fear in them. They are terrorized to move and relocate in any part of the world beyond their home/domestic territory. This narrows the scope of mobility of labour and knowledge workers which is a necessary precondition for economic growth and development.
  • The irreparable destruction following terrorism - the construction delays, security concerns and public criticism - lead to changes and delays in the process of re-building and re-structuring the economy. On the flip slide the funds which could be invested for growth and expansion would now be utilized in the process of restructuring and recovering the losses and damages caused by terrorism.

Conclusion

Today, organizations all over the world operate in a hyper-turbulent change-intensive environment. They use various change processes, such as outsourcing, downsizing, and reengineering, to ensure the continued success of the firm. Some of the changes are reactive (natural disasters, terrorism, market crash, etc) and others can be proactive (like Mergers & Acquisitions, Downsizing, Outsourcing, etc). An organization in its effort to adapt to these environmental changes faces the problem of adjusting and controlling the reactive changes especially terrorism. There is little that firms could do to consolidate their position in the face of such an uncertainty. So, reconstituting and reassuring the workforce through proper communications with a sense of security and stability is necessary for organizations.

References

    1. Biswas, S., "Knowledge Services Sector to Generate $ 200-b Economy by '20", The Economic Times, New Delhi, 12 April 2005, p. 16.

    2. Chaudhuri, A.R., and K. Muthukumar, "The World's Ageing, and it's an Old hand at Work All around You", The Economic Times, New Delhi, 15 June 2004, p. 9.

    3. Greer, C. R. 2002, Strategic Human Resource Management: A General Managerial Approach, 2nd edition, Pearson Education, Singapore.

    4. Lengnick-Hall, M.L. and C.A. Lengnick-Hall 2003, Human Resource management In the Knowledge Economy: New Challenges, New Roles, New Capabilities, Berrett-Koehler Publishers, Inc., San Francisco, pp. 36-43.

    5. Roehling, M.V., M.A. Cavanaugh, L.M. Moynihan, and W.R. Boswell 2000, "The Nature of the New Employment Relationship: A Content Analysis of the Practitioner and Academic Literatures", Human Resource Management, Vol. 39, no. 4, pp. 305-20.

    6. Ruta, C.D.2005, "The Application of Change Management Theory to HR Portal Implementation in Subsidiaries of Multinational Corporation", Human Resource Management, vol. 44, no. 1, pp. 35-53.

    7. Shah, K., "The Dream Nightmare", The Economic Times, New Delhi, 10 June 2006, p.7.

    8. Tsui, A.S. and J.B. Wu 2005, "The New Employment Relationship versus the Mutual Investment Approach: Implications for Human Resource Management", Human Resource Management, vol. 44, no. 2, pp. 115-21.

    9. Wilhelm, W.R. 1990, "Revitalizing the Human Resource Management Function in a Mature, Large Corporation", Human Resource Management, vol. 29, no. 2, pp. 129-44.
     


Ms. Chitra Krishnan
Lecturer
AIBS
Amity University
Noida
 

Source: E-mail July 29, 2009

          

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