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Impact of National Culture and Institutions on HR Practices

  • 10 Pages
  • Published On: 11-12-2023

Introduction

Nations holds diversified culture and institutional capitalism related ideologies which mostly governs the business operations. The differences in the cultural affinities and the institutional differences results to shifts in the HR management principles and activities that are undertaken by the businesses while making dynamic expansions. In this connection, the discussion would develop a clear assessment of the impact of national culture and institutions on the HR practices of a UK based MNC while operating from Germany (Malik 2017). The purpose of the discussion would be to determine the cultural and institutional factors that affect the HR practices and the manner in which the HR personnel of the businesses adapt to the changes while operating in the international context.

The institutional differences between UK and Germany in relation to capitalism

he concept of LME, which is one of the aspects of capitalism, specifically focuses towards identifying a nation as a free economy which is characterized by a decentralized system of industrial relations while ensuring the effective positioning collective bargaining in the enterprise and workplace levels (Gallego‐Álvarez and Pucheta‐Martínez 2020). According to Nölke (2019), the operations in a free economy is not restricted and supports a business in ensuring the continuity of its growth and development while addressing the issues through negotiation and collective bargaining practices.

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On the other hand, the Coordinated market economies are mostly reliant on different formal institutions for regulating the markets and coordinating or interacting with firms and different other stakeholders. Benney (2019) observed that a CME is a more rigid sort of economy where the businesses are mostly reliant on an administrator or an external body with the purpose of interacting with other business and different other stakeholders. The major source of difference between an LME and CME is specifically based on the rigidity of the operations and the manner in which institutions take a part on the operations of the firms. In different situations, it has been observed that businesses grow more efficiently in LMEs rather than the CMEs as there are fewer restrictions that limit the scope of growth and expansion of an organization in the markets.

UK is by far a LME (Liberal Market Economy) which operates through the competitive market arrangements. It has been observed that the institutional arrangements in UK are less rigid and the firms in UK can operate freely while addressing the specific legislative requirements that are imposed by the government. Moreover, it has been witnessed that businesses in UK are competitive by nature. The inter- firm relations between the firms in UK are mostly competitive (Nölke 2019). Businesses compete with one another with the purpose of gaining a sustainable edge over the other players. The mode of competition that is undertaken by the UK based firms are specifically direct product based competition which supports the same in attracting the attention of the customers and ensure sales.

The most important aspect of the UK as an LME is specifically based on the wage bargaining power. The employees and the employers are free to bargain on their wages while negotiating and fixing a suitable remuneration package. The firm level bargaining on the wages has been one of the major characteristic of a nation being a LME. In this connection, it has been observed that the wages are bargained in the firm level by the UK based businesses which conforms that UK is an LME. The distribution of income among the people in UK is unequal, based on the skill sets and experience of the same. Remuneration being a negotiable factor in UK has supported the businesses in attracting the attention of skilled and experienced employees with high salary packages (Malik 2017).

On the other hand, it has been observed that Germany is a CME as most of the industry based decisions are made by specified institutions and are followed by the businesses throughout. The firms collaborate with one another, unlike being competitive firms of UK, with the purpose of achieving greater outcomes. The collaborative functioning of the firms has been an integral part towards maintaining equality (Gallego‐Álvarez and Pucheta‐Martínez 2020). On the other hand, the wage bargain aspects in Germany are specifically guided by the industry standards and equal payment options. For an instance, people with a specific designation would receive a specific salary bar as decided by the authorities on the basis of the industry standards.

Therefore, no bargaining on the wages in the firm level are encouraged in Germany. It has also been observed that the active labor unions are present in Germany based firms being a CME. The fair bargaining capability of the employers association and labor union are provided in a CME and Germany based firms makes use of the opportunity to bargain or negotiate on terms of employment contracts. Therefore, it might be stated that the Germany’s Capitalistic structure is different from that of UK on the basis of the differences in the institutional approaches.

Differences as per the Hofstede’s culture insights

Differences as per the Hofstede’s culture insights

Power Distance Gaps: UK and Germany both holds a culture of lower power distance gaps between the employees and the employers which has supported the growth of the businesses through collaborative functioning between the stakeholders. A lower score on the power distance gap denotes that employees and managers work in a collaborative basis which affirms the perpetual success factors of businesses (Wetzel et al. 2021). Therefore, the lack of difference between UK and Germany’s culture in relation to power distance gaps would allow the businesses and the HR professionals in operating at ease.

ndividualism: German societies and work culture is specifically driven by individualistic ideologies whereas UK is highly individualistic. It has been observed that increased individualistic ideologies specifically rely on the fact that people are mostly concerned with their own personal growth opportunities rather than the collectivist mentality of standing for the common good (Trzaskawka and Kic-Drgas 2021). Therefore, the UK based business would find lower complexities while adapting to the German work culture.

Masculinity: Germany and UK are masculine societies where the activities are led by the ideas of competition, achievement and success. Therefore, it might be observed that the UK based organization would encounter no threats while operating from Germany.

Uncertainty Avoidance: Germany ranks highest in terms of uncertainty avoidance than that of UK’s work culture. In this connection, it might be stated that Germans are more concerned about the uncertainties than that of UK based work culture which might affect the capability of the HR in coordinating with the expectations of the people of securing their job designations.

Long term orientation: Germany is a pragmatic society and believes that truth mostly depends on the situation and time whereas UK culture denies pragmatism with a lower score of long term orientation., Therefore, the UK based organization might face significant concerns in adapting to the long term orientation based practices while working with the Germans

Indulgence: Germany is a restrained society with pessimistic views administering over the decisions and the behavior of the people, whereas UK culture is indulgent in nature and people in UK are reliant on positivistic views which might create concerns for the UK based firms in governing over the German based HR.

Impact of institutional and cultural differences on HR practices

The institutional and cultural differences between UK and Germany would be affecting the decision making and policy framing capabilities of the UK based firm. It has been observed that the UK based HR in businesses specifically operates through the effective collective bargaining while setting wages as per the firm standards. However, the Germany based HR practices mostly differ from that of UK as the HR decisions and policies are guided by the administrators and the industry standards. Moreover, the equality of payments in the Germany based businesses might affect the capability of the UK HRs in addressing the needs of the expatriates who would travel to Germany for work (Benney 2019).

The UK based companies does not consider uncertainties whereas the Germans do. The contradictions in the areas of uncertainty avoidance related culture might affect the capability of the UK HRs in developing coherent systems while addressing to the uncertainty based concerns of the Germans. The UK based operational culture is specifically guided by competition whereas the relation between the German firms is related to active collaboration. In this connection, the UK firm might encounter challenges in collaborating with the German firms being threatened on parts of patent and copyrights. Lastly, the German societal structure being restrained in nature with pessimistic ideologies guiding the operations of the businesses, the UK businesses or HR activities might be restricted in different situations through rigid policy lookouts and legislative requirements.

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Conclusion

Therefore, from the above assessment it might be stated that there are significant differences in the context of institutional capitalistic ideologies and culture between UK and Germany which might significantly limit the efficient functioning of the UK based MNC in the German markets. The research differentiated between the institutional ideologies and the cultural aspects between the nations and thereby identified the impact of the ideologies and culture on the HR activities of the UK based firm.

References

Benney, T.M., 2019. Varieties of capitalism and renewable energy in emerging and developing economies. Journal of Economic Policy Reform, pp.1-26.

Gallego‐Álvarez, I. and Pucheta‐Martínez, M.C., 2020. Environmental strategy in the global banking industry within the varieties of capitalism approach: The moderating role of gender diversity and board members with specific skills. Business Strategy and the Environment, 29(2), pp.347-360.

Hofstede Insights, 2021. Country Comparison - Hofstede Insights. [online] Hofstede Insights. Available at: [Accessed 14 April 2021]

Malik, T.H., 2017. Varieties of capitalism, innovation performance and the transformation of science into exported products: A panel analysis. Technological Forecasting and Social Change, 118, pp.324-333.

Nölke, A., 2019. Comparative Capitalism. In The Palgrave handbook of contemporary international political economy (pp. 135-151). Palgrave Macmillan, London.

Nölke, A., 2019. In search of institutional complementarities: Comparative Capitalism and economic policy reform.

Trzaskawka, P. and Kic-Drgas, J., 2021. Culturally Immersed Legal Terminology on the Example of Forest Regulations in Poland, The United Kingdom, The United States of America and Germany. International Journal for the Semiotics of Law-Revue internationale de Sémiotique juridique, pp.1-31.

Wetzel, E., Lang, F.J., Back, M.D., Vecchione, M., Rogoza, R. and Roberts, B.W., 2021. Measurement Invariance of Three Narcissism Questionnaires Across the United States, the United Kingdom, and Germany. Assessment, 28(1), pp.29-43.

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