Effects of Inclusive National Workplace Diversity on Global Competitiveness: TSCS Analysis
Effects of Inclusive National Workplace Diversity on Global Competitiveness: TSCS Analysis
Matiur Rahman /Volume 13/Issue 2/(April September 2020)
This paper is a simple empirical exploration of the effects of inclusive workplace diversity across selected forty-seven countries using the relevant data form 2008-2009 through 2015-2016. The TSCS results reveal that increases in inclusive national workplace diversity, workplace inclusion and anti-discrimination legal framework strongly improve global competitiveness across these countries. At the same time, the positive effects of social and government inclusions on global competitiveness are relatively subdued.
Keywords: Global Competitiveness, Workplace Diversity, Inclusion, TSCS
A global perspective in diversity and inclusion management is an imperative for global corporate competitiveness. The definition of global diversity should encompass an understanding of the differences between countries as well as the internal diversity of each country. The scope must be global, and knowledge about the country’s customers, employees and suppliers is essential. Support from top management and clear communication for workplace diversity and inclusion practices are also important. A diverse workforce alone does not equate to a successful global diversity management program. Inclusion programs and initiatives that bring a heightened sense of awareness and sensitivity to differences often provide employees with tools to overcome the potential challenges associated with diverse global teams (Johnson, 2011). “Diversity” and “Inclusion” are very often lumped together as if they are the same thing. But that is just not the case. In the context of the workplace, diversity equals representation. Without inclusion, however, the crucial connections that attract diverse talents encourage their participation, foster innovations, and lead to
business growth will not happen. Inclusive workplace also requires leadership to be inclusive. This kind of leadership involves ensuring that team members speak up and are heard; making it safe to propose novel ideas; empowering team members to make decisions; taking advice and implementing feedback; giving actionable feedback; and sharing credit for team success. Diversity without inclusion is a story of missed opportunities. Employees used to being overlooked no longer share ideas and insights. But diversity with inclusion provides a potent mix of talent retention and engagement. The leaders and companies that encourage workforce diversity and inclusion tend to have ability to not only improve their market shares in the existing domestic market but also capture new markets in the global business environment. Also, organizations with the inclusive work environment tend to attract and retain the best talents available who are the key ingredient for generating creative ideas that, in turn, impact on customer’s retention and on organization’s performance (Mollel, et al., 2015).
Businesses with diverse workforces have more opportunities to expand their respective businesses to international markets. As employers hire diverse pools of individuals, they benefit from diverse perspectives in terms of approaching company challenges and developing a deeper understanding of clients from around the world. Employees may provide crucial insight into cultural attitudes and differences, as well as local and regional distinctions. Employees with foreign language skills prove to be critical in communicating with foreign businesses and organizations. A firm is able to gain greater insight into ways of negotiating deals and doing business abroad by hiring a diverse workforce. All of these factors lead to an increase in access to the global market. This, `in turn, results in higher returns for a company due to an increase in cross-border transactions. Diverse groups make better decisions, enhance creativity, and foster the trust and understanding of customers (Raatikainen, 2002).
Diversity is a key driver of innovation and is a critical component of being successful on a global scale. Senior executives are recognizing that a diverse set of experiences, perspectives, and backgrounds is crucial to innovation and the development of new ideas. This is crucial to encouraging different perspectives and ideas that foster innovations (Rizy, 2012). Today’s companies must figure out where and how to compete, and who the customers are. Accordingly, they ought to build a workforce that reflects their desired customer base. Recruiting, retaining and fully taking advantage of the skills and perspectives of the right mix of people is a critical success factor in the 21st century. Changing demographics, emerging markets and new buying trends all are pointing to the need for more diverse workforces, suppliers and markets (Dexter, 2004). Competition literally comes from everywhere as a result of globalization, consolidation and new technology. Businesses that view workplace diversity merely as a regulatory compliance issue in the domestic market are positioning themselves for failure.
This paper attempts to empirically explore the effects of workplace diversity and inclusion on global competitiveness across selected forty-seven countries. The remainder of this paper proceeds as follows. Section II briefly reviews the related literature. Section III briefly specifies the estimating Time Series and Cross Section (TSCS) methodology. Section IV reports results. Section V offers conclusions and policy implications.
2.0 BRIEF REVIEW OF RELATERD LITERATURE
Theoretical arguments revolve around the potential of diversity and its effective management to create a competitive advantage for business organizations. However, empirical findings relevant to the topic portray a somewhat mixed picture (Kossek, et al., 2006). Domestic demographic shifts already have changed business strategies for recruitment and retention geared toward improving productivity. Most businesses need to be active in global recruitment of the best possible workers to successfully capture significant shares of global markets. Businesses of all sizes should learn how to successfully play in the global marketplace and to become effective global competitors (Alpert, 2008).
Bunderson, et al., (2002) emphasize that the construct of functional diversity can be conceptualized in different ways as they have very different implications for team process and performance. This study examines two different forms of functional diversity: dominant functional diversity and intra-personal functional diversity. The results underscore the importance of careful articulation, definition, and measurement of demographic constructs. Intrapersonal functional diversity seems to be more important for managing team effectiveness than the simple distribution of team members across functional categories. Barker and Gower (2010) take into account the significant communication needs in today’s diverse business environment as a prelude to establishing an immediate and vital social
connection among members recognizing all heterogeneities in the workforce. Carpenter, et al., (2001) examine the role of human capital in the resource-based and dynamic capabilities perspectives of competitive advantage for improvement in financial performance. They find that knowledge and human capital-based resources create a profit-opportunity for key stakeholders of multinational firms.
Chatman and Spataro (2001) investigate how demographic differences affect workers’ responses to organizational cues for collaboration with their co-workers. Demographically diverse co-workers behave more cooperatively when their business unit values cultural diversity. This underscores the importance of understanding and managing cooperative behavior in changing demographics and cultural settings. Cox and Blake (1991) study how managing diversity can create a competitive advantage. They address cost, attraction of human resources, marketing success, creativity and innovation, problem-solving skill, and organizational flexibility. These six dimensions of business performance are directly impacted by the management of cultural diversity. They also advance suggestions for improving organizational capability to manage workplace diversity. Dexter (2004) emphasizes that increased globalization leads to new markets, intensified competition, changing demographics, and the need for fresh perspectives that build a strong case for workplace diversity in corporate America. Unless diversity is integrated into every aspect of a company’s business, and all stakeholders understand that it is critical to success, companies are likely to be left behind. By adopting strategies such as relationship building, recruitment and setting appropriate goals for hiring workers of diverse cultural backgrounds and promotions, businesses can improve their competitiveness in an increasingly competitive global market environment.
Harrison, et al., (2002) propose that stronger teams stimulate collaboration. As time passes, increasing collaboration weakens the effects of surface-level (demographic) diversity on team outcomes but strengthens those of deep-level (psychological) diversity. Also, perceived diversity transmits the impact of actual diversity on team social integration that improves job performance. Jehn and Bezrukova (2004) find higher levels of performance through effective management of a diverse workforce. They suggest that managers may capitalize on certain types of demographic diversity in groups, if they take into account the appropriate workgroup environment. Their findings further suggest that diversity in levels of education can be beneficial in workgroup environments that support customer-focused values and emphasize change and innovation. Companies can improve the performance of their groups and individuals by establishing and promoting specific work environments in which a particular type of diverse group can thrive. Richard (2000) suggests no direct and positive relationship between cultural diversity and firm performance. Instead, the effects are likely to be determined by the strategies a firm pursues and by how organization leaders and participants respond to and manage diversity. The results also highlight the importance of human capital as a strategic asset and reflect the value of people in firms and their role in obtaining competitive advantage. Hence, human resource practitioners can add value not only through the implementation of particular human resource management practices, but also by generating a cultural mix in the human resource base (Delery and Doty, 1996).
Richard,et al., (2004) indicate that management level heterogeneity can be a critical asset in certain strategic contexts, although the diversity performance relationship is complex. The results show that within certain settings, cultural diversity in management groups can be exploited to gain a competitive edge. Given the irreversible trend towards more racial and gender
diversity, managers need to develop organizational capabilities to maximize the benefits of diverse human capital and ultimately to strive for a sustainable diversity advantage. Raatikainen (2002) concludes that globalization opens more possibilities for companies through the use of multi-culturalism as a source of competitive advantage. The study also finds that diversity offers benefits in terms of creativity, cohesion, better decisions, and greater understanding of markets. Thomas (2004) shows that IBM’s strategy to promote diversity in its own workforce has resulted in a virtuous circle of growth and progress.
Recently, research has focused on the benefits and opportunities that arise from a diverse workforce. Successful organizations with diverse work teams report that these teams are more effective and produce better financial results as well as better results in innovation (Nelson, 2014). At a diverse workplace, transformative learning is a process where both individuals and social groups undergo a shift in perspective that leads to an open and reasonable frame of reference. This shift in perspective is the central process of adult development, as learners critically reflect on attitudes, ideas and beliefs in their world, and confront realities that are no longer relevant to their world view (Lange, 2013). Organizations that champion diversity provide leadership and social responsibility such as mentoring, succession planning, family- friendly programs, flexible work arrangement, training and accountability (Sabharwal, 2014). For example, the growth in Canada’s population due to immigration greatly contributes to economic, social and cultural achievements (Jebwab, 2016). Canada’s future prosperity depends on its people, including an increasing number of visible minorities. This segment of population is projected to increase even much faster than the rest of the population (Conference Board of Canada, 2015). Diversity management is a process that “involves creating a positive environment where employee’s attitudes and behavior are altered through training and awareness (Ewoh, 2013).
2.0 ESTIMATING MODEL AND METHODOLOGY
A simple theoretical model in general functional form is formulated as follows:
Here, f_w,f_s,f_g andf_l are the first-order derivates with expected sign. Y=g(N); g_N>0…..(2) Again, is the first-order derivative with expected sign.
Substituting for N from equation (1) into equation (2) and taking total differentiation with respect to N,dy/dN= g_N (f_w+f_s+f_g+f_l )>0…..(3)
Subsequently, the following equation is estimated in natural log of all variables invoking TSCS methodology:
Y_i=α+γ_it W_it+δS_it+πG_it+θL_it+ u_it……(4)
Where, Y =Global competitiveness index, N =National diversity index, W = Workplace inclusion, S = Social inclusion, G = Government inclusion, L = Anti-discrimination legal framework, and u= residual term. Annual data are used form 2008-2009 through 2015-2016 across selected 47 countries (i=1, 2,……..,47) in consideration of their economic and regional geographic importance (Appendix A).Such selection is limited by complete data availability. The relevant data are obtained from;
Time-Series-Cross-Section (TSCS) data are used as suggested in (Adolph, et al., 2005). TSCS data resemble panel data, where a large number of units are observed over a relatively small number of sample periods. TSCS data typically have the opposite structure of panel data. In this case, a relatively small number of units are observed for some reasonable length of time. Thus, methods that are appropriate for panel data analysis are not necessarily appropriate for TSCS data and vice versa. These data are common in the study of international relations (Maoz and Russett, 1993). For stationary data, the ordinary least squares (OLS) method is be applicable to obtain the best linear and unbiased estimates of the parameters.
To describe each component of the model as an explanatory variable, the Global Diversity Readiness Index addresses the above five areas of diversity and inclusion. This index comprises 39 indicators, of which 23 are qualitative and 16 are quantitative. To describe each variable, National diversity includes male/female population ratio, immigrants as a percentage of total population, religious diversity, ethnic and racial diversity, percentage of population over 65 years of age, income inequality based on Gini Coefficient, and number of official or major languages. Workplace inclusion consists of existence of “glass ceilings” for minorities in the workplace and corporate ethics. Social inclusion incorporates tension between religious groups, perceptions of ethnic or racial tension, cultural openness towards migrants, openness to gays and lesbians, social ills including kidnapping and extortion, female/male university enrollment ratio, educational attainment of minorities, public education spending as a percentage of gross domestic products and importance of religion in country politics. Government inclusion takes into account political participation of minorities, hostility to foreigners/private property, years of female head of state, female representation in legislature, years of minority president or prime minister, corruption in government and respect for human rights. Legal framework enshrines anti-discrimination laws to protect minorities, anti-discrimination laws protecting women, laws ensuring paid maternity leave, laws protecting immigrants, policies towards immigration, quality of judiciary, enforceability of contracts, and civil liberties. Broadly, minorities are defined based on ethnicity/race, religion, disability, and sexual orientation in a proper context. An improvement in each variable is expected to enhance global competitiveness. They are included in the Global Diversity Readiness Index.
The results are reported as follows:
Table 1: TSCS Estimates
R̅2 = 0.7419,, and significance of F at 0.00016 The estimated parametric coefficients have expected positive sign. Workplace inclusion and anti-discrimination legal framework have significant effects on global competitiveness. Social inclusion and government inclusion also have positive influences on global competitiveness, but they are relatively weak in terms of the associated respective t-value. This implies that an increase in inclusive national diversity with workplace inclusion, social inclusion, government inclusion, and anti-discrimination legal framework improve global competitiveness. However, the strengths of their causal influences are in varying degrees. In terms of the F-value, the estimated regression is statistically significant. In terms of the associated p-values all variables except social inclusion and government inclusion are significant. The numeric value of
2shows, that about 74 percent of global competitiveness is explained by these variables.
5.0 CONCLUSIONS AND POLICY IMPLICATIONS
To recapitulate, inclusive national workplace diversity with workplace inclusion and anti-discrimination legal framework significantly improve global competitiveness. On the other hand, social and government inclusions unleash weakly positive influences on global competitiveness. In light of the above, all countries should emphasize inclusive workplace diversity and manage it effectively to enhance global competitiveness. The reasons to promote diversity vary from moral consideration to profitability. A leading business reason is to expand access to global talent pools to stimulate corporate growth in the environment of intensifying world competition. Thus, human resource management must intensify efforts to increase workforce diversity with inclusion by developing appropriate policies and practices for discrimination-free environments where a heterogeneous workforce can flourish. In closing, diversity work needs to be adjusted to the local context in which one needs to find diversity dimensions that are important and relevant to each specific country.
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Appendix-A: Selected Countries
Argentina, Australia, Austria, Belgium, Botswana, Brazil, Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, Ghana, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Malaysia, Mexico, Netherlands, New Zealand, Nigeria, Norway, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, UAE, United Kingdom, United States