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Sociocultural Factors

The sociocultural factor analyzes the demographic and cultural aspects of the company’s market. These factors help companies examine consumer needs and determine what pushes them to make purchases. Among the items that should be examined are communications, religion, values and ideologies, education, social structure, demographics, population growth rates, age distribution, cultural limi- tations, lifestyle attitude, attitudes towards work and job market trends.

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An understanding of sociocultural factors has important implications when it comes to a company’s decision about when and how to do business in a country. For example, because of low labor costs and language similarities, many U.S. businesses have found India an attractive place to locate their facilities, particu- larly call centers.

By recognizing and accommodating different ideologies, religious beliefs, communication styles, education systems, and social structures, HRM profession- als and other organizational members stand a better chance of understanding the culture of a host country—a country in which an international business operates. Even in countries that have close language or cultural links, HRM practices can be dramatically different. For example, employers might be expected to provide employees with meals while at work and transportation between home and work. In most of the Islamic Middle East, it is completely acceptable to ask coworkers very personal questions about their children, especially their sons, but never about their wives (Tulshyan, 2010; Vollmer, 2015).

Technological Factors

Technology issues affect how an organization delivers its product or service to the marketplace. Specific items that need to be scrutinized include, but are not limited to, government spending on the maturity of manufacturing equipment, information systems, technological research, technological advancements, the life cycle of current technology, the role of the Internet and how any changes to it may play out, and the impact of potential information technology changes. Even in less-developed countries where manufacturing is typically stronger due to low cost of labor and high cost of capital-intensive equipment, labor-saving technolo- gy is becoming more affordable and accessible. Take, for instance, a textile factor in Vietnam. It is more cost effective for the factory to purchase high-tech thread- ing equipment to spin the cotton into thread than to hire hundreds of people to

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thread the cotton by hand, even when the average wage for such employees is less than $100 a month. Just like the other factors, companies should consider genera- tional shifts and their related technological expectation to figure out how they will affect who will use their product and how it’s delivered (Snell & Morris, 2019).

While advances in technology have pushed for more service-based jobs, infor- mation systems and technology platforms have also increased the rate at which these services can be traded across countries. Along with the creation of the WTO, 1995 also signifies the beginning of the Internet era mentioned early which is a major driver of the increase in globalization.

Table 2.1 provides an example of PEST analysis that can give HRM profession- als and other organizational members a clear understanding of how this works:

Every country varies in terms of its political, economic, sociocultural and tech- nological systems. These variations directly influence the types of HRM systems that must be developed to accommodate the particular situation. The extent to which these differences affect a company depends on how involved the company is in global markets.

Today, employees around the world continue to become empowered to com- pete without the need of a large company. For example, many websites such as guru.com have developed an online marketplace where individuals can offer vari- ous services and compete for business throughout the world. Consider the reality that one might be interested in developing a new website for their company. By going to the Internet one can select various individuals offering specific services. They may be from different parts of the world. In conclusion, these PEST factors shift the way companies are formed and how they and their HRM professionals go about managing their human resources in a global environment.


Today’s international business operations can take several different forms. A large percentage of these operations carry on their international business with only lim- ited facilities and minimal representation in foreign countries. Others have exten- sive facilities and personnel in various countries of the world. Managing these

TABLE 2.1. Sample Pest Analysis

Political Economic Sociocultural Technical

• New state tax policies for accounting

• New employment laws for employee handbook maintenance

• Political instability in a foreign partner country

• International economic growth

• Changes in interest rates

• Shift in educational requirements and changing career attitudes

• Population growth rate

• Automated processes in the industry

• Rate of innovation • Changes in technology



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Globalization and Human Resource Management • 39

resources effectively, and integrating their activities to achieve global advantage, is a challenge to a company’s leaders and HRM professionals.

Often we hear companies referred to as “multinational” or “international.” However, it is important for HRM professionals to understand the different levels of participation in international markets. This is especially important because as a company becomes more involved in international trade, different types of HRM challenges, problems, and opportunities arise.

Bartlett and Ghoshal (1991) identified the following four international organi- zational models:

• Decentralized federation in which each national unit is managed as a sepa- rate entity that seeks to optimize its performance in the local environment. (This is the traditional multinational corporation).

• Coordinated federation in which the center develops sophisticated man- agement systems enabling it to maintain overall control, although scope is given to local management to adopt practices that recognize local market conditions.

• Centralized hub in which the focus is on the global market rather than on local markets. Such organizations are truly global rather than multinational.

• Transnational in which the corporation develops multi-dimensional stra- tegic capacities directed towards competing globally but also allows local responsiveness to market requirements.

Adler (2008) offers another categorization of the four various levels of inter- national participation from which a company may choose and includes the fol- lowing levels of involvement or participation: domestic, international, transna- tional, multinational. The four basic types of organizations differ in the in degree to which international activities are separated to respond to the local regions and integrated to achieve global efficiencies.

Domestic. Most organizations begin by operating within a domestic market- place. For example, a business that starts in the U.S. marketplace must recruit, hire, train, and compensate their employees who are usually drawn from the local labor market. The focus of the selection and training programs is often on the employees’ technical competence to perform job-related duties and to some ex- tent on interpersonal skills. In addition, because the company is usually involved in only one labor market, determining the market rate of pay for various jobs is relatively easy.

As the company grows it might choose to build additional facilities in differ- ent parts of the country to reduce the costs of transporting the products over large distances. In deciding where to locate these facilities, the company must consider the attractiveness of the local labor markets. Various parts of the country may have different cultures that make those areas more or less attractive according to the work ethics of

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