HR Issues, Credit Crunch Crisis Of 2008 and Multinational Organizations

Introduction

According to Barton (2003) the evolution of human resource management is related to historical evolution of business and economy in which the organization operate. Therefore, the role and the decisions of human resource managers and Hr function mainly adapt to circumstances of the economic cycles. In order to succeed and to survive in the local as well as international markets the HR managers devise such strategies when the economic or business situations need modified choices. This shows that HR or the employment decisions contribute significantly in the economy of the country (Bolman and Deal, 2007). 

Read also Impact of the Financial Crisis on the Insurance Industry

In this assignment, to study about credit crunch faced by the world in 2008, Nike one of the renowned multinational corporations of America has been chosen to investigate role and the contribution of HR in the global financial crisis. Nike was founded in 1964 and since then it is headquartered in Oregon, USA. Nike is involved in designing, development and the worldwide selling and marketing of apparel, footwear, sports accessories and equipment. Since the globalization has occurred Nike has shifted it majority of the manufacturing function in the developing countries of Vietnam, China and Indonesia and it currently employs more than 500,000 employees in developing countries (Burnham, 2009).

Identify and Critically Evaluate the Possible HR Issues that led to Credit Crunch

In the year 2008, the economy of the world has suffered one of the biggest financial and economic crises of the recent times. It has been said that the financial crisis in US is considered as the origin of this credit crunch which has had a significant impact on the global economy which In turn triggered broad and the profound crisis of employment which further has led to increase the social recession throughout the world. Based on the data provided by IMF (2009) and the global financial crisis has mainly led to 30 million people towards unemployment which is more than the figure that was evidenced in global recession. It is further identified that the global unemployment level has been increased to 200 million people at the end of 2012. According to Boxall and Purcell (2011) the evidence present in OECD, it has been recognized that the unemployment in developed countries is around 47.8 million people  and out of this more than 13.1 million is due to the onset of 2008 financial crisis.  This type of unemployment is known as cyclical as it has been said that this kind of unemployment is linked to the country’s business cycle.

Conner and Ulrich (2006)illustrated that when evaluate major causes of global financial crisis, it has been identified that there are some possible human resource issues that led to the financial crisis, as lots of changes has been evident in regard to the human resourced decision in last three decades. The biggest challenge the multinational organization like Nike faced was leading and managing people which was further complicated due to the recession, increased uncertainties and volatility (David, 2007).

Nike believed that the company greatly required adapting the quality and the size of the workforce to times (Dirks and Ferrin, 2003).  Out of several consequences, the head of HR at Nike have had to reduce the employee number in developed countries when the company shifted its operations in developing countries for the sake of reducing the costs (Guest, 2004). Nike took this initiative long back in late 1980s when the company identified that the developing regions are more cost effective in terms of production facilities. This step of Nike proved to be highly successful and helped in generating higher profits too.

Read also Current Financial Event Discussion – World Financial Crisis Announcement By IMF

Nike currently 47% market share of domestic footwear industry with around sales of $3.7 billion. It has been more 25 years that Nike has been producing its products in Asian region.  However, after having several production facilities in different regions of the world it is reported that Nike only employs 20,000 employees in total (Watson, 2008). This is because Nike has used the strategy of outsourcing and has subcontractors in different parts of the world. Nike is originally an American multinational organization but most of its products are produced in the factories of China, Indonesia, Taiwan, South Korea and Vietnam (Wright and McMahan, 2002; Tsui, Pearce, Porter and Hite, 2005). All these factories are 100% owned by the subcontractors and Nike only employs a team of four expatriates in each region to look after the managerial functions. This can be considered as one of the major contributing role of Nike in global financial crisis because despite of huge global market share and the profitability the company only employs 20,000 employees which has led to higher rate of unemployment in developed countries as when the company has moved it production function in developing countries lots of people of developed countries were laid off and when many other organizations followed this trend it eventually resulted in the biggest financial crunch of 2008 (Gamberoni  and Richard, 2009).

Read also Subprime Mortgages and Their Role In The Financial Crisis of 2008

They also developed their code of conduct in 1992 and have implemented it across the globe, as its goal is to set the standard for subcontractors to follow if they wish to do business with Nike (Guest, 2004).  On the other hand, the internal management of the company focuses on efficiency. Though Nike is a very large organisation in terms of global market share and profitability it employs only around 20,000 employees. It is also identified that when organization faced pressure in late 1980s to decrease the cost and the fringe expenditures and also require the justification for each dollar of all the incurred expenditures the management of Nike decided to shift its production to more cost effective countries like China, South Korea and etc (Ellis & Shockley-Zalabak 2001).  This as result cause increase in unemployment in developed countries, economic contraction, redesigning the pay structures, cutting back the incentives, less training and development and career growth opportunities for the people of developed countries.

Challenges faced by Nike due to Credit Crunch 2008 – International HR Manager’s Perspective

Due to the global financial crisis Nike had to face several challenges in terms of international labor markets, skill shortages and training and development opportunities. First of all, shifting the production from the developed countries like Europe and US negatively impact the Nike to a certain extent as it played a significant role in deteriorating quality of the Nike’s product ad decreasing the competitiveness of Nike’s product (Barton, 2009). The reason behind this negative impact is that the workforce in Europe and US is more qualified comparatively to developing countries particularly in Asian countries like China or Vietnam where Nike has shifted its manufacturing functions.  The major reason of Nike behind relocating its production functions in developing countries is mainly due to the low cost workforce which proved to beneficial for Nike to a great extent (Bolman and Deal, 2010). At the same time provoked strong proposition from the public as they believed due to multinational organizations like Nike through shifting their production function

Read also An Evaluation of Nike’s Views and Goals Related to CSR

faced the criticism that the home country US is no longer produce what to sustain themselves and they import more than they export and as a result assets sale has increased due to such measure taken by companies like Nike and forced people to take massive debts in order to sustain the their living standards because of increase unemployment and gradually this has led to global financial crisis 2008 (Burgess and Campbell, 2008).

The market of United States is one of the biggest and the saturated market in which Nike operates. The company has directed its efforts to expand into the emerging markets and the outcome of this is that the company started losing its market share in US and since US is the largest market the loss in US market share for Nike may substantially reduce the revenue of the company (David, 2009).

 Moreover, when the company expands its operations in international market it has to face several issues related to HR like short of talent, the foreign multinational company like Nike faced this issue when they attract and retain the qualified managerial staff in developing countries as the most of the people in developing countries are less qualified (Burnham, 2009). However, in the current era people of developing countries are progressing upwards professionally but since the foreign multinational companies like Nike require more technically skilled employees that can understand the international management techniques in order to set up good organizational culture.

Another HR issue that is faced by the multinational organization in the international market is the compensation system, as most of US and European multinational organizations like Nike decided to shift its production facilities due to the fewer wage in developing countries (Bamberger and Meshoulam 2010). However, the issue that is identified in regard to compensation system is the most of the qualified staff of the developing countries are moving to different developed countries to get the better paid jobs. Since China has now become one of the economies of the world after entering into world trade organization the turnover rate in China has increased and as a result salary of employees ahs increased by 8% per year (Cascio, 2010).  These increases have led to the growth in the wage rate of developing countries and this has increased the issue for Nike as they face difficulty in retaining its talented workforce in the organization because the organization is not paying the employees of developing countries as per their performance and demanding overtime form these employees in low wage rates (Gamberoni and Richard, 2009). The related consequence of this kind of pay system used by Nike in developing countries is increasing number of dissatisfaction among the qualified and the experienced staff.  When Nike faced the shortage of the experience and the qualified staff it has become difficult to involve the local employees effectively.

Furthermore, the economic globalization has increased the demand of the expatriates of Nike in developing regions because they are familiar with the organization’s management techniques and the methods that are used in the organization than the local employees of developing countries (IMF, 2009). However, the issue faced by the organization in international market is that they had to face high rate of expatriate failures as most of the expatriates returned back to the home country as they face the cultural shock in developing markets because the life style of developing countries is highly different form the western style of living and due to this cultural shock the expatriates of Nike failed to perform adequately in the developing countries as a result Nike had to develop sub-contractors in different regions of the world where Nike operates (Watson, 2008).

The training and development issue is also major HR issue that is faced by Nike because when any organization operates in the international market it is highly important to first train the employees of to get use to the organizational culture and the way the uncertain situation needs to be handle the uncertain situations (Bamberger and Meshoulam 2010). Cascio (2010) defined that due to the global financial crisis the organizations had to cut down its training and development opportunities I order to reduce the cost but when the employees are not trained properly they could not perform their tasks effectively and at the management level when employees observe that the company is not providing and development opportunities to them in terms of career growth opportunities it becomes difficult for the organization to retain the competent employees in the organization.

As An International HR Manager, Discuss And Justify Your Plan Of Action To Assist The Recovery Process Of This Crisis For Nike

The function of HR plays an essential role in the success of the organization; as a result several companies are more likely to place the HR management department at the heart of strategic decision making process in the business (Armstrong, 2006). Furthermore, the global financial crisis also has given rise to certain issues that provide HR to effectively demonstrate it expertise and enhance the image and the status of company in the market. The major HR issues that need to be addressed in Nike are training and development opportunities, the quality circles in the organization, enhanced integration in the organization and the improved communication (Burnham, 2009).  For Nike after the global financial crisis it has become significant to effectively deal with all these issues in order to retain and the engage the competent staff in the organization to improve the overall performance and to help the company in gaining the market share in its home country US which is also considered as one of the largest markets of the world (Boxall and Purcell,  2011).

Read also Complexities of the United States Financial System

To address the defined issues an action plan is recommended to the Nike which is discussed below in detail;

First of all it is highly important for the multinational company like Nike to provide training and development opportunities to its employees because if employees are not motivated or supported by the organizations in term of their career growth the competent employees without giving a second thought exit from the organization (Burnett, 2002). Therefore, Nike is required to do the training need analysis which is done after evaluating the actual performance of the employees with the expected performance. Conner and Ulrich, (2006) also defined that the employee training is highly important in the modern economy when the nature of the work is constantly changing with the advancement of technology and new technology requires new improved work skills. Nike can use two types of training to train its employees especially in developing countries because the competition in the developing country has increased considerably due to many other multinational companies have expanded their operations the employees have more options there to switch the jobs easily.

Therefore, Nike can use on job training with the help of this kind of training employees can enhance and develop the skill as per the job requirements and this training is usually provided to the operational level employees (Dortok, 2006).  Secondly, Nike can also provide off the job training which the management can select a certain number of employees to attend the training arranged outside the workplace may be in foreign countries so that the employees can understand the international management techniques. Through off the job trainings the employees can retain highly proficient managerial employees in the organization.

Read also Management Action Plan – Receivable Crisis in Stevens County Hospital

In addition to provide training and development opportunities the employees Nike should also use quality circles in the organization because quality circles helped the organizations in saving around $3 to $6 per unit and also facilitate to avoid the cost for every dollar that has invested in the business (Lepak, and Snell, 2002). Through quality circles the organization save a lot such as one of the most famous companies of US save around $6 million in three years and reported a saving to cost ratio of around  8 -1. Through some research findings it is also recognized that one more company of US saved 50% cost on or important contracts. Through quality circles the company like Nike can greatly reduce the defect level which increases the costs greatly (Watson, 2008).

However, it cannot be denied that the cost of organizing quality circles because it requires to held frequent meetings but in the end it could provide greater benefits to Nike in terms of productivity, quality, employee more, customer satisfaction and safety more than the costs (Gamberoni and Richard, 2009). Since Nike is a part of massive production industry therefore, the use of quality circles should be taken as the investment rather than the cost in order save each penny incurred as the product cost. Moreover, the quality circles also help the organizations to motivate the individuals this activity provides the training and an experience to form a great leaders. Tsui, Pearce, Porter and Hite (2005) agreed that quality circle works as the proven training program that highlights the managerial potential.

For Nike to effectively address its HR related issues that got affected due to the global financial crisis it is suggested that improving horizontal and vertical integration is highly important, through horizontal integration all the activities of HR at Nike should provide more support to each such as the activities of recruitment and selection, reward management and others must be tailored in a way that each gets the support from the other (Guest, 2004). On the other the improvement vertical; integration is important for Nike s it requires to effectively all support and merge the Hr activities with the other organizational activities in a way that the HR activities moves in the direction with organization’s vision and mission. For huge company like Nike it is highly difficult to manage effective communication across all its subsidiaries and within each subsidiary, but if the communication process of the organization is inappropriate then the organization cannot attain its long terms goals in an effective way (Grant, 2003). The organization needs to work in reducing the communication barriers ad after this financial crunch occurred across the world highly demands decentralization of decision making process in Nike subsidiaries.

Positive or Negative Outcomes of The Global Financial Crisis From HR’s Perspective

The world has significantly changed after the global credit crunch of 2008 and it descend as well as turned the business world and economies on its head. The credit crunch that has occurred in 2008 has created great chaos that has not been witnessed in the ages, due to this crisis the strategies of the businesses were completely torn apart as some of the strategies placed in reverse and others were kept on hold for the indeterminable period of time The survival became the preferred and only strategic priority even for the huge multinational organizations (Bamberger and Meshoulam 2010).

Read also 2008 Financial Crisis In USA -Causes And Effects Essay – Answered

In the period of global financial crisis the corporate world has shifted from routine to the survival and from excess to the essential (David, 2007). This required the designing of the new relationships, strategies and priorities. In order to ensure that the organization or the business to effectively survive in the tough conditions and in future the human resource play a significant role which is also known as the expanded role in the recruitment and selection of employees, corporate organization, institutional learning and training (Cascio, 2010).

 The positive outcome of this global crisis that has been observed in Nike is that in the times of constraint like global financial crisis of 2008, the major purpose of employee recruitment in Nike was not quantitative but more of innovative and qualitative in order to enlarge the company’s capabilities to overcome such uncertainties. It is also analyzed that usually in the organization the role of employees is rigid and defined clearly in terms of responsibilities in huge companies like Nike. However, in the crisis, at Nike the task of human resource get expanded and they were required to develop, initiate and assess appropriateness of organizational structure that can make effective changes to eradicate the silos, improve communication internally as well as externally and speeding up the development and releasing new products that are valuable to the customers (Burnham, 2009).

Once the focus, plan and priorities of the company is defined the next step that HR performs is to train and educate all the employees efficiently and consistently about the developed plans and each employee role in attaining the set organizational goals to overcome the crisis issues (Dirks and Ferrin, 2009). At this stage the management of the organization highly requires the support of HR to attract, retain and engage the employees in the organization through effective communication, negotiation, motivation for team building and to manage the employees and anxieties and fear about the crisis (Guest, 2004).  All these elements depict the positive outcomes of the crisis from the perspective of HR.

Despite the above mentioned positive outcomes, there are some negative outcomes as well of the crisis from the HR perspective. Such as such huge credit crunch often provide the substantial clarity regarding historical and internal maneuverings of the organization. Secondly, some of the hidden or inconsequential activities all of a sudden drive to the central stage (David, 2007). Another major challenge from HR’s perspective that occurred due to such huge financial crisis is to enhance the stressful working environment which is caused due to downsizing of the employees. Moreover, for long term success another negative outcome of the global financial crisis is that the employers cannot avoid the bargain hunting through hiring the top performers by offering less salaries and benefits then they deserve (Bolma and Deal, 2010).

Read also Book Evaluation – The Great Depression by David A Shannon

Lastly, the major negative outcome of crisis is that during such conditions the number of acquisitions and mergers usually increases as the companies want to collaborate with powerful organizations to survive (Boxall and Purcell, 2011). The consequence of mergers and acquisition in the workplace is observed among the employees in form of job insecurity, ongoing change, culture clash among two organizations and the reorganization.

Conclusion

After answering all the given questions as an international HR manager it is concluded that the global financial crisis caused significant impact on the businesses and the role of HR plays an essential role in causing the global credit crunch as well as in helping the organizations to overcome such situations. Since it has been analyzed that the origin 2008 global credit crunch was US and the example of Nike classified that some of the possible HR issues of huge multinational organizations like Nike was the one of the contributor in the global financial crisis, because whatever initiatives the HR of the organizations devise it not only impact the performance of the organization but also impact significantly on the economy of the world.  Like the decision of Nike of moving production facilities in developing countries helped the organization in generating sales and profits and reducing costs but overall it became one of the reason of downsizing in one of the world huge market of US and as result US gets involved in debts and they had to sell of their assets as they have stopped producing their products which gradually led to such huge credit crunch that not only affected the US economy but the world’s economy.

Order Unique Answer Now

Add a Comment

Your email address will not be published. Required fields are marked *