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With the expansion in business activities, organizations are now more focused towards gaining the competitive advantage. In this global era where the competition is very high, companies are trying to find some new opportunities for their businesses. The globalization development has encouraged the founding of the global market that makes expansion opportunities available for the organizations. Simultaneously it also brings chances to compete in the international market. Under such circumstances, a number of organizations change their business processes with the aim of mounting their competitive advantage and expand their business size among the market. As a result of the globalization and expansion of businesses, human resource has shown a vital association with these sorts of changes.
Along with other organizational resources, human resource is measured as the most integral element of the organization that performs an essential part in the success of the company. Human resource has become a significant factor of the organization that helps the organization in achieving its objectives. In this paper, a case study of change in the expansion strategy of Amazon will be discussed along with the consideration that how human resource of Amazon collaborates with the change. At first it will be discussed that why Amazon has changed its expansion strategy and later it will be discussed that what the two aspect of human resource is which are involved in the change.
Summary of the Case Study:
As Amazon is the well known online store but because of the high shipping cost across the borders, Amazon got failed in competing with Canadian online book retailer. As a result of this disadvantage, e-retailers are now adapting the Foreign Direct Investment (FBI) strategy so that they could expand themselves internationally. In addition to this, another international market entry strategy is emerging namely e-mediation that provide the functions of matchmaking in a country among the customers and the suppliers all the way through the website situated in another country. This strategy is usually adaptable in the circumstances where FDI strategies are forbidden by the protectionist barriers. Amazon also plans to implement this FDI and e-mediation strategy in Canada (Chakrabarti, & Scholnick, 2002).
In this age of globalization, shopping across the border has become simpler that consumers can easily purchase anything across the world with one click. Purchasing within the national border is now considered as of no consequence for e-commerce. Due to this fact, e-retailers are more encouraged to access equally to both foreign and domestic customers. As the online shopping’s sale is constantly growing. However the rate of return ratio and gross margin ratio is decreasing and is now at very low-level margin. For the most part, this low-level margin is the result of the increased in the competition. The competition is high because of the reason that the selling cost of the traditional retail outlets is comparatively higher than the online retailers (Chakrabarti and Scholnick, 2002). For that reason, e-retailers are needed to sustain their function in two ways either in the expansion of the product line or the expansion of the operation internationally. As a consequence of limited or low margin, the sales volume is particularly imperative for the e-retailers. For that reason, increased in the market size is a key factor in success for the e-retailers. International expansion allows the organization to increase its customer base in different geographical markets. When the strategy of marketing development or international expansion is combined with product line or diversification, then it could be one of the most appropriate strategy for Amazon, being the leading online book retailer in United States. These two ways of market expansion will be helpful for Amazon because it has a strong brand name, and people are much familiar with this brand so it can easily attract the international customers. Moreover, in the meantime it also reduces the international operation cost (Chakrabarti and Scholnick, 2002).
The most suitable e-retailer strategies for international expansion are Foreign Direct Investment (FDI), directly export and e-mediation. For an online retailer, international expansion includes shipping the product internationally. Directly export the product is not a suitable strategy for the Amazon to expand itself in the Canadian market. The reason behind this is that, in the North Atlantic Free Trade Agreement (NAFTA) books’ market is not integrated (Chakrabarti and Scholnick, 2002). When Canadian firms sell the online books, then they are getting more advantage than Amazon. This is because the reason that the major benefit that they get comes from the cost of shipping. However, another fact is that the international retailer is unable to serve effectively to local customer as it provides services to its domestic customers.
As compared to the search cost, international transactional cost is formerly declined and the shipping cost for the local online retailer, has made the Amazon unable to compete with the local retailer. Thus, in order to eliminate this disadvantage FDI has become essential for the online retailing. On the basis of the language Amazon has separated its retail in different countries including France, UK, China, Japan, German and so on (Barr, 2011). By adopting the FDI method, Amazon will be able to contact with local consumers in a much better way depending on the preferences of the specific country. In addition to this, FBI is most effective in saving the large shipping cost of eth consumers, by this means Amazon will get a competitive advantage in the local market. However, this strategy is still not very effective to operate in the Canadian market. This is based on the reason that National policies of Canada restrict the foreign subsidiaries, and the NAFTA does not include the book market, so it is difficult for Amazon to apply the FDI strategy.
Amazon got out of the Canadian market because of the failure of the direct export expansion strategy and FDI expansion strategy. With the aim of capturing the Canadian market again, Amazon comes with the new expansion strategy that is e-mediation. The function of this expansion strategy is that consumers will make online order by Amazon’s website of US, but the shipping of books will be done from the Canadian source (Chakrabarti and Scholnick, 2002). Therefore, the shipping charges for consumers will be low. This new strategy will not consider any physical occurrence of the company in Canada.
Impact of expansion strategy on Training:
As Amazon has changed its expansion strategy from FDI to e-mediation, this has a significant impact on the Amazon’s human resource. The first aspect of human resource in the change strategy is that it transforms elements of training. If an organization is operating its business activities in different countries, then it has to relocate its employees for foreign assignments. At the time of FDI strategy, the direct investment was being made in the Canadian market in order to hold up the Amazon’s business operations. Its local employees usually operate the Canadian business; however the staff for Amazon’s Canadian business will be sending from headquarters. As compared to the normal business professional, international managers’ knowledge and skills are much above. They are responsible to understand the market environment in which they are operating their business activities. In order to fulfill these all responsibilities and tasks, company is required to bring change in the training program for international managers. With the intention of training the international managers, the training program should cover every aspect of knowledge related to the business practices of both local and domestic market active. In the training sessions, international managers of the company should be trained about the legal and social aspects of targeted countries. This strategy can be helpful in improving the planning and how they should operate in that particular country as they would be aware about the legal and social issues (Bigelow, 1994). By giving the training to the international managers of foreign knowledge and skills Amazon can easily gain the competitive advantage in the foreign market. Amazon needs to train its international managers so that they could work according to the business rule of the Canadian market and could gain the market compatibility at the global level.
When the Amazon uses the e-mediation expansion strategy in Canada, it does not need any physical inventory because it only has to match itself with the demand of consumers and wholesalers. Thus, it can fulfill customer demand through the Canadian book wholesalers. Hence, for operating the business in Canada; Amazon will not assign any international manager for Canada. However, it will hire the local Canadian employees in order to serve the Canadian market because they are more aware of the customer preferences. The training will be given to the foreign employee because it is far easier then to train the domestic employees, as the foreign employee is already aware of the market regulations. When the foreign employee is hire, company will give him training with the aim of making him understand the organization’s culture and provide him clear job expectations so that he can integrate into the workforce. Therefore, from the case evaluation we can say that e-mediation has a vital impact on the Amazon’s training program.
Impact of expansion strategy on Recruitment and Selection:
When Amazon implemented the e-mediation expansion strategy, it also influences another aspect of the human resource that is recruitment and selection. In order to make a company successful, it is necessary to carry out the effective recruitment and selection process. Effective recruitment and selection process is helpful in the accomplishment of goals and improving the productivity of organization, it is essential to select the correct employee. However, if the company gets failed in selecting the right employee, then this decision will cost in replacing the employees. Every country have different rules and regulations for employees, the recruitment and selection is a responsibility because it make certain the hiring, wages or payrolls, and benefits. The purpose of recruitment and selection is to determine the need of the employee in the organizations and then from the pool candidate select the right person who best fits for the job (Fáilte Ireland, 2013). The recruitment is being done in two ways either internally within the firm or externally outside of the firm. If Amazon uses the internal recruitment strategy, then it has numerous benefits such as Amazon employee is already aware of its business operations. They only just need a little training and knowledge for the specific job; this will reduce the training cost of Amazon. It also reduces the chances of uncertainty that could be face by hiring the external candidate. However, Amazon is gone for the expansion strategy then it has to hire the external employees. As Amazon is expanding itself in the Canadian market, then it will hire the Canadian candidates who best fits for the job and is aware of the Canadian market trend and preferences.
Human Resource Management practice:
Because of such practices, Amazon is required to include the wide human resource management practices in its international working environment. Human resource management is describing as a set of human resources practices. Moreover, human resource management is a process through which many practices and decisions of management have a direct impact on eth workforce of the organization (Armstrong and Taylor, 2014). Human resource management concept is linked with its practices that include attracting, retaining and motivating the organization’s employees (Schuler and Jackson, 1987). These will be able to accomplish its business objectives efficiently by implementing the best human resource management practices in the organization, and can increase the employees’ productivity.
In the case of Amazon, human resource management implement the recruitment, selection and training practices to clarify the objectives of employees so that new employees can easily get adjust in the Canadian market. According to the Pfeffer (1998), there are seven best human resource management practices that are every effective in managing the organizational workforce and increasing the economic performance. However, Newman and Nollen (1996) disagree with the fact of effective human resource management practices; they said that in this era of globalization effective management practices does not exist. The management behavior differs from country to country. This different is might be a rise from because of the different culture of countries. There are two types of culture difference one is national culture and the other is organizational culture. National culture is the norms, values and beliefs of an individual that differ one individual from another (Ralston, Holt, Terpstra, & Kai-Cheng, 1997). While, on the other hand, organizational culture is the behavior of an individual who is working in an organization (Cai and Fink, 2002). Thus, the difference between management practices and working behavior is lead by the culture. If an organization is operating its business activities in cross-cultural, then it needs to implement the wide human resource management practices. Some countries require the individualism culture, and some require collectivism culture. However, it is easy for Amazon to accept the culture differences because America and Canada both are the individualistic culture.
The wider human resource management practices will aid the Amazon in transferring the knowledge. According to him when organizations apply different management practices then organizations have the advantage of great knowledge transfer. According to a study, an individual human resource management practices have an influence on the organizational learning and knowledge transfer. Hence, these broad human resource management practices have an influence on knowledge transmit in Amazon, which is helpful for improving the effectiveness of Canadian project.
Amazon is a well known online book retailer company but with the increase in competition among e-retailers and local retailers, it makes the Amazon implement the expansion strategies so that it could sustain its profitability. Among the three main strategies, direct exporting is not appropriate for Amazon because it incur shipping cost. So Amazon decided to use FDI strategy. However, this strategy also gets failed because of the government restriction policies in Canadian market. When this strategy also gets failed, then Amazon makes a third strategy that is e-mediation. By applying this expansion strategy, Amazon looks for the local wholesaler without using physical asset. In order to use this strategy, Amazon will hire a Canadian employee because he will be aware of the Canadian market and its rules.
Because of this strategy two sorts of changes will be implemented. One is training because Amazon will not send its domestic, international manager, so it has to give training to its Canadian employee. The second is the recruitment and selection as Amazon will hire an outside employee, so it has to recruit the best candidate. Further, Amazon should apply a broad human resource practice because of the knowledge transfer and cross-culture workplace.
Armstrong, M., & Taylor, S. (2014). Armstrong's handbook of human resource management practice. Kogan Page Publishers.
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Cai, D., & Fink, E. (2002). Conflict style differences between individualists and collectivists. Communication Monographs, vol. 69, no. 1, pp. 67-87.
Chakrabarti, R., & Scholnick, B. (2002). International expansion of e‐retailers: Where the Amazon flows. Thunderbird International Business Review, vol. 44, no. 1, pp. 85-104.
Fáilte Ireland. (2013). Recruitment and Selection. Available from http://www.failteireland.ie/FailteIreland/media/WebsiteStructure/Documents/2_Develop_Your_Business/1_StartGrow_Your_Business/Recruitment-and-Selection.pdf [Accessed 14th March, 2015]
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Schuler, R. S., & Jackson, S. E. (1987). Linking competitive strategies with human resource management practices. The Academy of Management Executive, pp. 207-219.
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