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J.D.

BIRLA INSTITUTE
(Department of Management)

SESSIONALS
Semester: 5 Section: A Group No: 6 Roll No: 34,35,36,37,38,39 Subject: International Business Management Topic: International Human Resource

Definitions of international human resource management:


IHRM can be defined as set of activities aimed managing organizational human resources at international level to achieve organizational objectives and achieve competitive advantage over competitors at national and international level. IHRM includes typical HRM functions such as recruitment, selection, training and development, performance appraisal and dismissal done at international level and additional activities such as global skills management, expatriate management and so on. In simple terms, IHRM is concerned about managing human resources at Multinational Companies (MNC) and it involves managing 3 types of employees namely, Home country employees- Employees belonging to home country of the firm where the corporate head quarter is situated. Host country employees- Employees belonging to the nation in which the subsidiary is situated. Third country employees- These are the employees who are not from home country/host country but are employed at subsidiary or corporate head quarters. As an example an American MNC which has a subsidiary at India may employ a French person as the CEO to the subsidiary. The Frenchman employed is a third country employee.

Differences between Domestic HRM (DHRM) and International HRM (IHRM) are summarized below:
Domestic Human Resource Management Staffs are placed within the national boundaries. (ii) Domestic HRM is concerned with managing employees belonging to International Human Resource Management (i) Staffs work outside their national boundaries. (ii) IHRM is concerned with managing employees belong ing to many nations (Home

one nation. (iii) Domestic HRM is concerned with managing limited number of HRM activities at national level. (iv) Less number of Rule and Regulations to be managed.- mostly employment and taxation rules of the home country. (v) Domestic HRM is less complicated due to less influence from the external environment. (vi) There is uniform policy in administration.

(vii) No special attention into the personal life. Confined to crche and cultural interactions. (viii) Challenges are confined to the situation of a particular country.

(ix) Special Training is not

country, host country and third country employees) (iii) IHRM has concerned with managing additional activities such as expatriate management. (iv) Very high number of rules and regulations which are related to taxation, employment rules, language translating services, work permit etc. (v) IHRM is very complicated as it is affected heavily by external factors such as cultural distance and institutional factors. (vi) Broader PerspectiveManagement has to be done according Host Country Nationals (HCNS), Parent Country Nationals (PCNS) and Third Country Nationals(TCNS). (vii) Special attention to personal life of expatriate employees- cultural training, schooling of children, employment opportunity for spouse. (viii) IHRM management has to be ready to face challenges like underperformance of expatriate employees, diplomatic relationships between host country and parent country, currency exchange rates which are variable and may impact the benefits of TCNS and PCNS. (ix) Special Training for

required for Socio Cultural adaptation.

expatriates so that they might not face unnecessary hassles in the alien socio cultural environment.

Factors that motivate firms to go international:


The motivating factors for firms to go international are as follows: To expand markets - Companies must grow to remain competitive. As markets mature in one nation other new markets grow in others nations. Marketing departments are becoming more sensitive to these expanding markets. When a market in another country opens the natural step is to move production closer to that market to reduce delivery cost and administration. The position and the shape of the product life cycle If a product is either in the decline stagnant or in the decline in the home market, the company may find new foreign markets where the product has not reached the same stage and which therefore offer potential for further growth. Severe competition in the home country The countries oriented towards market economics since 1960 had severe competition from other business firms in the home countries. The weak companies which could not meet the competitions of the strong companies in the domestic country started entering the markets of the developing and foreign countries. Availability of quality human resources at less cost The sources of highly qualitative and bulk raw materials and is a major factor for attracting the companies from various foreign countries. Most of the US and European based companies locate their manufacturing facilities in India due to availability of high quality and low cost human resources. To increase market share some of the large scale business firms would like to enhance their market share in the global market by expanding and intensifying their operations in various foreign countries. Companies that expand internally tend to be oligopolistic. Smaller

companies expand internationally for survival while the larger companies expand to increase the market share. To avoid tariffs and import quotas it was quite common before globalization that government imposed tariffs or duty on imports to protect the domestic company. The government also fixes quotas in order to reduce the competition to the domestic companies from the competent foreign companies. To avoid high tariffs and quotas, companies prefer direst invest to go international. To seek new technology Availability of new technology provide an increase in the quality of the products of a firm. Advanced technology in some countries act as a pulling act as a pulling factor for a business firm form the home country. The companies from developing countries are attracted by the developed countries due to these reasons. Market diversification - Worldwide companies can cushion the impact of adverse economic trends in one nation against different of relatively good economic trends in another. Diversification reduces risk. Of course with the increase in technology there is an increase of interdependence. Also foreign nationals and companies are increasing their investments in US firms. This leaves this country open to the same types of political and financial pressures that we are used to applying to other nations to forward our goals.

Impact of IHRM on Productivity:


IHRM International HRM is the result of an interplay among the three dimensions, namely human resource activities, types of employees and countries of operation. The complexities of operating in various countries and employing different national categories of workers is an important variable that differentiates domestic and international HRM, rather than any major differences between HRM activities performed. IHRM is the process of procuring, allocating and effectively utilising human resources in a multinational corporation.

In simple terms IHRM is a technique whereby a firm employs principles and practices to manage, maintain, develop and train human resource in international business. IHRM is the extension of HR principles and practices followed in the domestic country. Thus all those functions which are followed in the domestic market are carried to the international market. International Human Resource Management focuses on the following: Recruitment and Selection Orientation Training and Development Performance Appraisal Potential Appraisal Career Development The above mentioned functions are focused upon to meet with international demand of goods and services. Here the firm may select the impatriate and expatriate employees for the production process.

Expatriate- An employee working in a unit or a plant


who is not a citizen of the country in which the plant is located but is a citizen of the country in which the organization is headquartered. Impatriate- These foreign national employees have been transferred to work in the home country of an international organization on a temporary or permanent basis. The expatriates and impatriates are employed i.e recruited and selected, keeping in mind the production requirements of the host country. Thus in retrospect they are employed for polycentric, regiocentric and geocentric markets. There orientation is also based upon the production requirements of the host country i.e interfacing the employee as per the requirements of the host country. Similarly the training and development is based upon the requirement of the host country i.e understanding whether to use on the job, off the job training or virtual training.

In modern times productivity is closely linked with performance i.e performance based production. Thus performance appraisal is also based upon productivity in the host country. International business focuses on catering to a large number of countries simultaneously. Thus, along with measuring the present performance of an employee, it is also important to meet the future demands. International human resource management provides a platform for international exposure for employees, thereby leading to a huge risk of employee turnover. To overcome this risk IHRM employs career development for the retention of employees. This is because the ultimate requirement of IHRM is to develop flex patriates. Flexpatriate- Flexpatriates are those employees who manage multiple regions under them. This is done by frequent but short term international assignments. This is because IHRM develops ma power to support geocentric markets through product standardisation and product customization. Hence one single employee can be placed for multiple countries production requirements, thereby reducing the risk of production loss due to transfer and promotion. Finally it gives leverage to international firm for job rotation.

Expatriate:
Global companies, after selecting the candidates place them on the jobs in various countries, including the home country of the employee. But, the employees of the global companies are also placed in foreign countries. Even those employees who are placed initially in the home countries are transferred to various foreign countries. Thus, the employees of global companies mostly work and live in foreign countries and their family members also live in foreign countries. Employees and their family members working and/or living in foreign countries are called expatriates in the foreign countries. Expatriates are those living or working in a foreign country. The parent country nationals working in foreign subsidiary and third country nationals are

expatriates. Large number of expatriates normally has adjustment problems with the working culture of the company, country's culture, laws of the country etc. Some expatriates adjust themselves easily, while some others face severe problems of adjustments. Such employees about their assignments and return to home country by terminating their work contracts. Many Indian expatriate employees in Maldives could not adjust to the culture and returned to India before their assignments were completed. Thus, the major problem with expatriates is adjustment in the new international environment. Use of expatriates increases when: Poor or insufficient local talent There is a need to ensure a strong corporate-wide vision (and culture). When domestic and foreign operations are highly interdependent. The political situation in the foreign country is unstable There are significant culture differences. Bottom line: When the home country does not TRUST the abilities and/or intentions of local labour force.

Reasons for expatriates failure:


Expatriate failure is a growing concern for many multinationals and has been an area of research by academics and HR practitioners. This is because of high failure rates by expatriates who are being sent for overseas assignments. These are some of the reasons for expatriate failures: Transfer anxieties: Foreign assignments might have been pushed ahead without adequate preparation and advance planning. The expat might, as a result, find the task insurmountable, feel the pressure unbearable and return empty- handed. Career problems: A foreign posting creates, for the expatriates a number of career problems: the danger of coming home a stranger with a few familiar faces to greet his/her arrival, the likelihood of being tempted by the foreign style and losing the desire to return.

Personal problems: Expatriates may encounter serious adjust problems such as: personal discomfort and uncomfortable living conditions, homesickness, education, medical, health problems of family members, social aloofness, cultural mismatch. Other concerns: These include: the foreign posting might be looked at as a short term obligation, the expiates performance might be evaluated against a short-term criteria, the expat may begin to feel the pinch due to lack of continuity in plans empowering him to conduct the show for a reasonable period, business environment of the host country might be too restrictive, unfriendly and even unbearable.

Difference between International corporate staff responsibility and Domestic corporate staff responsibility:
Domestic corporate staff International corporate staff responsibility responsibility Staffs are placed within the Staffs work outside their national national boundaries. boundaries. Less number of Rule and Very high number of rules and Regulations to be regulations which are related to taxation, managed.- mostly employment rules, language translating employment and taxation services, work permit etc. rules of the home country. There is uniform policy in Broader Perspective- Management has to administration be done according Host Country Nationals (HCNS) , Parent Country Nationals (PCNS) and Third Country Nationals.(TCNS) No special attention into Special attention to personal life of the personal life. Confined expatriate employees- cultural training, to crche and cultural schooling of children, employment interactions. opportunity for spouse.

Challenges are confined to Icsr management has to be ready to face the situation of a particular challenges like underperformance of country. expatriate employees, diplomatic relationships between host country and parent country, currency exchange rates which are variable and may impact the benefits of TCNS and PCNS. Special Training is not sspecial Training for expatriates so that required for Socio Cultural they might not face unnecessary hassles adaptation. in the alien socio cultural eenvironment.

Different approaches to international staffing:


Staffing deals specifically with the acquisition,training and allocation of the organisation'shuman resources. In both the domestic and the internationalcontext, the staffing process can be seen as aseries of steps that are performed on acontinuing basis to keep the organisationsupplied with the right people in the rightpositions at the right time. In an international business, the way inwhich these steps are administereddepends very much on the firm'sstrategy and the staffing policy chosen tosupport that strategy. There are three choices in policy: a. ethnocentric approach b. polycentric approach c. geocentric approach

Ethnocentrism: It is a cultural attitude marked by the


tendency to regard ones own culture as superior to others. Sending home country executives abroad-thinking that they will be able to deliver the goods-may be an appropriate strategy in the initial stages of expanding company operations world wide as these officials know what to do immediately. Ethnocentricity(ethnocentrism)is a belief in the superiority of one's own ethnic group. Thefirm basically believes

thatparent-country nationals arebetter qualified and more trustworthy than the host countrys nationals. Rationale and Advantages: Experience curve effects derive fromstandardisation of production. The firm produces in the home country initiallyand transfers its core competency to the hostcountry under the guidance of expatriate manager. These managers have the knowledge to create value through core competencies. They also contribute to the maintenance of the corporate culture. Firms that pursue an ethnocentric policy believe that: There is a lack of qualified individuals in the host country to fill senior manager positions. It is the best way to maintain a unified corporate culture Value can be created by transferring core competencies to a foreign operation via parent country nationals. Disadvantages: a policy of ethnocentric is too narrow in its focus and may evoke strong negative reactions from the local executives. There is also no guarantee that the expats will win over the heart of local employees and offer positive contribution.

Polycentrism: In the polycentric corporation, there is a


conscious belief that only host country managers can ever really understand the culture and behavior of the host country market; therefore, the foreign subsidiary should be managed by local people. The home office headquarters, of course, is staffed by parent country

nationals.

Polycentricity(polycentrism) isa belief that

local people knowthe local environment betterthan outsiders. Hiring nationals has many advantages: It eliminates language barriers, expensive training periods, cross-cultural adjustment problems of managers and their families. It also permits the firms to attract talented locals by offering an attractive compensation package. Many western MNCs have found that the key to success in foreign soil is to employ local people. E.g. Bausch and Lomb Gives hope for profit maximisationthrough flexibility because localmanagers can react quickly to marketneeds in the areas of pricing,production, product life cycle, andpolitical activity. Disadvantages: No synergy because there is littlecommunication between nationalunits. Limits experience of host nationals totheir own country. Corporate headquarters may becomeisolated from national units and leadto lack of integration.

Geocentrism: geocentrism assumes that management


candidates must be searched on a global basis, without favoring anyone. The best manager for any specific position anywhere on the globe maybe found in any of the countries in which the firm operates. Geocentricity(geocentrism) isthe notion that the best people should be employes regardlessof their nationality. Adavantages: It enables the firm to make the best use of its human resources. It builds a cadre of international executives who feel at home working in a number of different cultures. Team members here are always interacting, networking and building bonds with each other, as they move from assignment to assignment, around the globe and participate in global development activities. E.g. Colgate Palmolive. Disadvantages: Expensive to implement because of the need for considerable cross cultral training and development.

International recruitment policy:


Recruitment means the searching for prospective candidates and stimulating them to apply for jobs. Recruitment attracts a large number of qualified applicants who desire to work in the company. The recruitment information given by the global companies help the qualified candidates who are willing to work to send their resume, along with a letter expressing their desire to work. It also helps the unqualified candidates to self select themselves out of the job candidacy. Thus, the accurate information provided by the global company attracts the qualified and repels the unqualified candidates. Thus, recruitment helps the global company in finding out potential candidates for actual or anticipated vacancies in the company. Sources of global recruitment include: parent country nationals, host country nationals and third country nationals. Parent country nationals Parent country nationals are employees (of a company or its subsidiaries located in various countries) who are the citizens of the country where the companys headquarters are located. Parent country nationals in international business normally are managers, heads of subsidiary companies, technicians, trouble-shooters and experts. They visit subsidiary companies and operationsTo help them in carrying-out their operations To make sure that they run smoothly To provide advice and control them. However, sending parent company nationals involves cost and causes ego and cultural problems. Hence, the North American companies stopped sending the parent country nationals to subsidiary companies operating in other countries. Host country nationals Host country nationals are the employees of the companys subsidiary who are the citizens of the country where the subsidiary is located.

Employing host country national is advantageous as: They are familiar with native culture They are familiar with local business norms and practices They manage and motivate the local workers efficiently They are familiar with local bureaucrats, market intermediaries and suppliers of inputs Familiar with the taste and preference of the local customers However, there are certain disadvantages associated with the host country nationals. These include: They are not familiar with the objectives, goals and strategies of the parent company. They are unaware of the needs of the headquarters They view the company only from the local perspective rather than from the global perspective. It would be difficult to train the host country nationals due to variations in the views about achievement, equity, the work ethic and productivity of the host country nationals from those of the parent country nationals. Third country nationals Third country national is an employee of a companys subsidiary located in a country, which is not his home country. The software professionals of India who work in American subsidiaries located in various countries of Europe are called third country nationals. The advantages of employing third country nationals include: Less cost with required expertise, skill knowledge and foreign language skills. Less risk of employing an Indian third national who speaks English fluently They have a cultural fit due to their work experience in multicultural environment However, the local government may impose conditions and regulate in employing third country nationals. International selection criteria: A selection program for international assignments involves assessing prospective candidates on certain criteria thought to be associated with assignment effectiveness. In order to have a successful selection program there needs to be a broad range of prospective candidates from which

to choose criteria of effectiveness and valid procedures for assessing candidates on them. For an expat to succeed, the selection process must be rigorous and must invariably include criteria such as: General and technical criteria: Research findings consistently indicate the MNCs place heavy reliance on relevant technical skills during the expatriate selection process. In addition, the expatriate manager should be a good communicator and process management talent, maturity, emotional stablility in ample measures. Language skills: Most researchers argue that knowledge of the host-countrys language is an important factor affecting the performance of an expatriate, Where the expatriate is expected to communicate with host counter subjects frequently, language skills come to occupy the centre stage. Cross cultural suitability: Expatriate managers must be able to adapt change. They must have the ability to translate their technical or managerial skills into meaningful action plans in a foreign environment. They should get along with local people easily without upsetting host country customs, traditions and other cultural niceties. The expatriate managers should as a rule, have good interpersonal skills and extra-cultural opennessincluding a variety of outside interests, tolerance for ambiguity and non-judgmental behavior. Motivation for foreign assignments: The candidate for foreign assignment must believe in the importance of the job and possess a certain amount of idealism or a sense of mission. Applicants, who are not happy with their current situation at home and are looking to get away, rarely succeed as overseas managers. Family situations: Several items including the adaptability of spouse and family, spouses positive opinion, willingness of spouse to live abroad, stable marriage compromises this factor. This factor was found to be the most important of the above list, contributing to the expats success or failure on a foreign locale. International compensation: Compensation is the amount of remuneration paid to the employees. Due to differences in tax and cost of living as

well as often difficult living conditions, pay and benefits for employees living abroad must be decided carefully paying attention to three things: The expatriates income should atleast be equivalent to what he or she is getting at home Additional incentives must be offered for accepting the international assignment It is better to avoid having expatriates fill the same jobs held by locals or lower-ranking jobs. In such cases talented local employees may resent the higher pay and allowances given to expatriates, complain about inequity in pay and may even quit in protest. Most MNCs use what is most popularly known as the balance sheet approach which tries to equalize purchasing power across countries. The employer using this approach estimates expenses for income taxes, housing accommodation, goods and services and reserve and pays supplements to the expatriate in such a way as to maintain the same standard of living he or she would have had at home. The multinational corporations in order to motivate the employees for higher performance introduced a scheme of profit sharing. Under this scheme, workers get a right to have a share in the net profit of the company if the profits cross a certain limit. This provision motivates the employees to improve production, sales and profits. The MNCs also introduced another plan to motivate the employees and to retain them. The expert and efficient employees go on shifting to the other organizations which pay higher salary and offers better facilities. This problem is more acute in software and information technology firms. These companies introduced the employee stock ownership Plan in order to reduce employee turnover and retain them in the company. International training and development: Need for training and development for global jobs:Training and development for global jobs are necessary due to the following reasons: To match employee specifications with the job requirements and organizational needs.

To achieve organizational viability and the transformation process. To meet the challenges of technological advances. To understand the organizational complexity. To make the employee and his family members familiar with the language, customs, traditions etc., of the foreign country. After the employee is inducted into the company, his skills, knowledge and attitudes are moulded and developed. Training is the organized procedure by which people learn knowledge and/or skills for a definite purpose. Training improves changes and moulds the employee's knowledge, skills, behaviors, aptitude and attitude towards the job and organizational requirements. In case of international business, training and development refer to the development of expatriate not only towards job and organizational requirements, but also towards the host country's culture, environment and requirements. Therefore, crosscultural training assumes greater significance in international business.

BIBLIOGRAPHY:

http://www.scribd.com/doc/44638337/Approches-toInternational-Staffing www.laruetech.com www.scrib.com class notes, lectures of M.D.Feroz Human Resource Management by V.S.P.Rao; chapter 30; page no:684-685. Managing Human Resource by Wayne.F.Casio; 5th edition.