CHAPTER -1

INTRODUCTION
EXECUTIVE
SUMMARY
Information Technology Industry in India has come of age and the competition between the
various players have intensified. The main resource based on which IT companies define
their core competencies have always been “manpower”. Therefore attracting capable
employees, developing them in the organization, retaining them and maintaining the
knowledge they create is a major strategic objective for all the organizations in the sector. To
do so the Human resource departments in these companies has to evolve and take on a more
central role in the organization. With the top management support, the HR function in IT
organizations has taken to the new challenges posed by the business environment by bringing
in innovation in the Human Resource practices. While trade papers intermittently record
these efforts, research efforts have not been undertaken to understand the extent and impact
of IHRM practices in India especially in the Information technology context. Therefore this
study attempts to understand:

1. The extent to which HR managers believe that innovation in HR practices are important for
achieving goals of the organization.

2. The major areas in which innovation is required

3. The extent to which Indian companies have succeeded in inculcating innovative HR

practices

4. the major influences on the kind of HRM innovations adopted by Indian IT organization 5.
The important outcomes of innovation in HR practices with reference to organizational
commitment and performance In order to do so, HR managers at twenty large, medium and
small IT companies were interviewed in the city of Mumbai with Headquarters in Bengalure.
The results of the study indicate that HR mangers agree that including innovative HR
practices is extremely important especially in the process of attracting and rewarding
employees which are two of the largest challenges they face. The areas in which these
mangers are currently seeing extensive use of IHRM practices include the Compensation,
Rewards and employee acquisition strategies. In Employee acquisition use of referral bonus
and the social media is increasingly common while use of a blend of financial and non-
financial rewards in addition to “Best employee” etc. is also finding more takers. Virtual
working has also become increasingly acceptable to organizations if it means that they can
retain talent. These innovative practices according to HR mangers of these companies help
organizations to remain competitive in the job market; moreover their clients also audit them
to ensure that their HR practices are as per acceptable international standards. With these and
the employee satisfaction in view, top managements have also been pushing their HR
departments to bring in innovative HR strategies. But on the flip side, these HR managers
feel that in spite of the efforts the industry is making, the employee commitment levels are
low and they will shift for higher pay or status.
TOPIC CHOSEN FOR THE STUDY
“A study on innovative HR practices IT industry in India”

India was declared itself open to Liberalization in the year 1991. This paved the way for
industrialization and rapid transformation in the Industry and Business sector. Liberalization
also meant change in the working style of the people and hence organizations needed to
innovate the HRM practices in an effort to ensure survival in an increasingly
hypercompetitive environment. (Som, July 2008) (Muduli, June 2012).
The key challenges of any HR department are employee acquisition, retention, developing
employees, performance management, and talent-management according to (Ramlall, 2009).
Seeking, developing and engaging and keeping talent is a big challenge for today’s
organizations because of innumerable options available outside (Ramlall, 2009). This is
especially true for the Indian IT industry. Hence, (Ramlall, 2009) argues that if companies
continue to implement or use the traditional ways of Human Resource practices, is it quite
doubtful whether the HR manager would be able to sustain the organization during an
economic downturn.

OBJECTIVES OF THE STUDY

1. To achieve the organizational goal by proper utilizations of human resources.

2. To identify the best HR practices conducted in IT industry in India.

3. To motivate the employees and keep their moral high with innovative HR practices.

4. To develop and maintain healthy relations between management and employee

through HR practices.

SCOPE OF THE STUDY

1. HR practices to achieves high standards of performance in the organization.

2. Human resources are related to acquire designing and developing.

3. It provides basis for recruitment, training and development

NEED OF THE STUDY

1. Providing security to employees in IT industry.

2. Hiring the right people.

3. Training in relevant skills.

4. Self managed and effective teams.

RESEACH METHODOLOGY :

Data collected by secondary data

Meaning of secondary data :

Secondary data refers to data that is collected by someone other than user.

 when researcher utilizes secondary data, then he has to look into various sources
from where he can obtain the data
 Data collected through internet and other information related to project has been
taken from the company website
LITERATURE REVIEW

Innovative Human Resource Management Practices (IHRM) Human Resource Management

Research has always been a very hot topic and has been discussed and researched by several
researchers all over the world. There have been several developments in the Human Resource
field and the Human resource department has eventually evolved over the years (Paauwe,
Nov 2001) (Harvey, Dec 2001). Because of rapid industrialization and globalization, the need
for trained and skilled manpower becomes imperative. Companies have started recognizing
the importance of the HR Department and are aligning the HR function to the strategic
business goals and objectives (Srimannarayana, Oct - Dec 2010). HR Department would be
accountable for the strategic decisions and the overall performance of the organization
(Harvey, Dec 2001). A lot of Researchers have emphasized that employees that work in
teams or team work has resulted in productive performance of the organization (Carmen
Camelo Ordaz, April 2008). Nowadays, there are many companies which have also adopted
newer technologies like internet services in an effort to undertake their HR responsibilities.
There are many social networking websites available which connect people from the farthest
corner of the world. Websites such as naukri.com, timesjobs.com and LinkedIn are very
popular websites for recruitments in India.

Need for adoption of IHRM practices The dynamic and changing business environment of
India, that started off with liberalization in the first phase, then moved on to
privatization/deregulation (second phase), and the third or the current phase of globalization,
has made it imperative for modern organizations to adopt IHRM practices (Som, May 2007).
Previous research has also indicated and shown that organizations adopt IHRM practices to
improve their organizational performance According to authors who have worked in this
area, organizations adopt IHRM practices to remain competitive and save their business.
Several Indian organizations have adopted IHRM practices to remain competitive and
improve their organizational performance (Singh, June 2003). Companies such as Hero
Honda, Tata Motors, Bharat Forge, Hindustan Inks, Sundaram Clayton, BPCL, Maruti
Suzuki, Infosys, and Wipro were able to successfully adopt IHRM practices in their
organizations to withstand the blow of liberalization, privatization, FDI, and the threat of
MNC’s (Som, May 2007). Sung-Choon, (2013) and Conway, (2011) suggests that
organizations are inclined to adopt IHRM practices to improve or augment their
organizational efficiency and employee productivity. It also suggests that organizations now
face severe competition or regulatory pressures which again makes IHRM practices
inevitable. A previous research interviewed some HR professionals in the U.S, who named
some 40 innovative HR practices that were executed or implemented in their organizations.
Some of these innovations that were named were human resource information system, 360-
degree appraisals, internet or online recruiting, Six-sigma, outsourcing, competencybased
compensation, etc.

Innovative Human Resource Initiatives in various functions of the HR According to (Som,

May 2007) the HR Department is changing and embracing new innovative HRM practices.
The HR department is no more known as a support or a secondary function, but is given
equal importance as to the other functions in the organization. (Som, 2007) suggests the
various innovative initiatives taken by the HR department. According to the author, the

recruitment initiatives included “fair and open systems, free flow of discussion,
induction/orientation”. Promotion and compensation were thus now done only on merit and
competency basis, and employees who are efficient, productive and competent were
promoted faster. The author also claims that “Organizations are practicing job rotation, re-
training, redeployment to build the employees skills and knowledge in all areas of work”.
Career Development is another initiative which is introduced to help build, manage and grow
an employee’s career in the organization. Majority of the researchers are of the opinion that it
is imperative that an organization adopts innovative HR practices, which helps in breaking
the monotony and motivates the employees to work hard and be more productive. It improves
the quality of the organization’s performance (Som, 2007). (Mahal, 2012) emphasized that
innovative HRM practices in training, compensation and reward lead to reduction in
employee turnover, absenteeism, better productivity and motivation and improved financial
performance.

Innovative HRM Practices in some of the Well-known and Established Companies in India
Som, (March-April 2006) and Harish Jaina, (March 2012) has put forth some examples of
companies that have implemented IHRM practices in their organization and reaped the
benefits of the same. Maruti Udyog Ltd, is a name to reckon Trust, Belief and Care. It truly
revolutionized the automobile industry in India. It faced intense competition from MNC’s
such as Ford, Mitsubishi, Hyundai and Honda. Initially, Maruti did not acknowledge the
importance of the HR Department and thought of it as an unnecessary burden. But soon it
realized the HR Department’s importance because of the mounting pressure and the threat
from the MNC’s. It decided to reactivate the HR function and link the HR strategies with that
of the organization or business strategy. The HR department was entrusted to manage the
whole and soul of the organization and

was held responsible for the employee and organizational effectiveness. Soon, the HR
department of Maruti was successful in developing a productive team, and its compensation
practices became the best in the industry (Malji, July-Dec 2013).

Innovative HRM Practices in the IT and ITES Industry The Information Technology
Industry has gradually evolved over the period of years. The progression has been rapid from
IT to BPO (Business Process Outsourcing) and to the newer terminology known as KPO or
Knowledge Process Outsourcing. According to the Daintith, (2009), , “Information
technology (IT) industry involves in the application of computers and telecommunications
equipment to store, retrieve, transmit and manipulate data, often in the context of a business
or other enterprise”. ITES (Information technology enabled industry) took shape because of
the increasing need of IT in every aspect of business. Small to large scale businesses requires
IT in their business. Working in ITES sector means to work within a business setting using
information technology. A major part of ITES in India is through Business process
outsourcing (BPO) which is a subset of outsourcing that involves the contracting of the
operations and responsibilities of specific business functions (or processes) to a third-party
service provider. Often the business processes are information technology-based, and are
referred to as ITES-BPO, where ITES stands for Information Technology Enabled Service.
(Nellis & Parker 2006). Knowledge process outsourcing (KPO) is a sub-segment of business
process outsourcing industry. Sachdeva, (2009) defines KPO as “The outsourcing of high-end
knowledge intensive processes requiring considerable domain expertise which necessitates a
shift of execution from standardized processes to processes that demand superior analytical
and technical skills as well as decisive judgment”. People or employees are the most
important success factors that contribute to the massive growth of the Indian IT and Business
Outsourcing Industry (Disha Sachdeva, 2009).
LIMITATIONS OF STUDY

1. HR practices should have the support of top level management.

2. The study aim to analyze the HR practices only in IT sector.

3. Time constraint is the limitations to overview in IT industry.

CHAPTER-2
INDUSTRY
PROFILE
 Industry Profile
Introduction
Indian Software industry has tremendous growth and economic policy has a
substantial revision in 20th century. The IT industry offer opportunities for foreign
direct investment. Due to liberalization, industries were grown by which foreign
reserves as well as employment opportunities have increased. In the initial days, IT
firms export software to other countries because here man power is widely available
with low cost. As the potential of the software industry was identified government of
India developed high speed infrastructure to meet the demands of foreign clients.
Indian software companies developed high quality as well as unique software to meet
the needs of multinational companies as a result they obtain a wider range of software
development tasks. IT/ITES sector has listed incredible growth over the decade,
achieving iconic position all over the world and a reputation for cost-effective
delivery of services.

IT companies in India have set up over 600 delivery centres all over the world. The
revenues have grown from 1.2 percent (1997-98) to 8.1 percent (2013-14). India
maintains top position in the global sourcing arena, for about 55 percent in the year
2013 (of the global sourcing market size) compared to 52 percent in 2012.
(source:NASSCOM)

Today the world‟s largest outsourcing destination for IT industry is India, which is
around 52 percent of the US dollar 124-130 billion market. The IT industry employs
roughly 10 million Indians which ultimately contribute to the economic growth of the
country. The Unique Selling Proposition (USP) of Indian IT services is its cost
competitiveness which is 3-4 times cheaper than the USA.

Many firms like TCS, Infosys, and Wipro have met top certification for the quality
standards. According to the report of National Association of Software and Service
Companies (Nasscom), GDP share has grown widely when compared to other
industries [142]. India exports information and software services rather than products
 to 95 countries all over the world. The top 5 firms in terms of revenue are TCS,
Wipro, Infosys, HP India, and IBM [143]. Top companies contribute 80% of revenues
from Indian Software industry.

Evolution of IT Industry
During 1950s people are not aware of the term “software”, the term was bundled with
hardware by some multinational companies like IBM and ICL with some basic languages like
PASCAL etc. These two are the largest hardware companies which provide basic services. In
mid 1970‟s India exported its first software service. The problem here to export software is
companies had to design its own hard ware system which needs to fulfill worldwide
standards. In order to import the hardware system government of India impose heavy duty tax
which the Indian companies cannot afford on their own. After few years Indian government
has reduced the tax duty with condition that exporters would recover twice the value of
foreign exchange spent on importing the computers. Then the era of software begins in India.

India has largest technical skilled employees working with low salaries and they shift from
one industry to industry to other because of fewer companies. The Indian programmers were
available with less than 12 dollars and the Indian firms are ready to complete the software
projects for the half of the cost when they compared with abroad. This creates a numerous
jobs for Indian employees and free profit opportunity for foreign companies. There is a
shortage of employees in US for the projects in their companies and in India oversupply of
employees lead to match the demand and supply in both countries because of this software
industry. The Government of Andhra Pradesh particularly setup several IT parks and hubs to
reduce unemployment. Companies that come under these parks are tax free and have
extraordinary facilities with high speed data communication and internet. The central
government gave the power to state government regarding licenses, import or export
procedures. Tata Consultancy Services (TCS) was the first software company in India and got
export assignment in 1973. TCS has begun to outsource application work for Central Bank of
India. The company sent some engineers to abroad in order to excel in their platforms. The
main competitive advantage for Indian software companies are cost reduction and the ability
to communicate in English. The main reason to export software is to increase foreign
exchange in India.
The evolution of the IT industry can be studied in 4 phases.

Phase I : Prior to 1980

Indian IT industry was basically started with hardware products and software industry

was literally non-existent in India until 1960. Government protected the hardware sector

through high tariff barriers and licensing. In the west, there was greater demand for

software development as the inbuilt software with the systems was insufficient to

perform all the operations. The Government of India realizing the potential of this sector

to earn foreign exchange. In 1972, the government formulated a software export scheme

in which it was decided to import hardware and export software. TCS Ltd. became the

first firm to agree to this conditions. The beginning of software exports was made in the

year 1974.

Phase II: 1980- 1990

During this phase, inspite of the government initiatives, the software exports could not

reach the expected level because of two reasons. The export of software was dependant

on the imports of hardware and the procedural aspects were too cumbersome. There was

no proper infrastructural facilities for software development. In order to encourage more

participants in this sector, relaxation to procedural activities and reduction in import duty

was mandatory. To counter the prevailing problem a New Computer Policy to policy was

formulated. According to this policy the import procedures were simplified and the

import duty for import on hardware for software developers reduced.

In 1986, the government took a step ahead to sustain and grow the benefits received as a

result of the New Computer Policy. It formulated software policy and liberalized the IT

industry. In this policy the imports of hardware were de-licensed and were also made

duty free for the exporters. This policy has reduced a number of entry barriers making the
growth in this sector inevitable.

In 1990, government gave impetus and established Software Technology parks of India

in order to increase the exports of software and services.

Phase III: 1990- 2000

This period has witnessed intensified competition in the IT Industry. With companies

investing in research and development and variety of software services. As this decade

marked the beginning of significant changes in the economy, including trade

liberalization, opening up of Indian economy for foreign investment, devaluation of the

rupee and relaxation of the entry barriers. Due to the advantages, this policy had attracted

foreign investment in India and MNC s in India were introduced. “Offshore Model” “On

site model” Global Delivery Model (GDM) were introduced as a part of their

distinguished services.

Phase IV: Post 2000

The global problems like Y2k, the dotcom crash and the recession in the US economy has

forced many US firms to utilize the services of the Indian firms. This has resulted in

placing the Indian IT industry on the global map.

Post 2002 – 03, the industry had registered a robust growth rate. During this period there

was an increase in the Indian client base, large sized contracts and a strong global

delivery model
Evolution of the IT industry

The above graph, presents the summarized form of various phases and the characteristics

present for the growth and development of the IT industry.

Industry Segmentation

IT industry can be broadly classified into three sectors:

Software

IT Services

IT enabled Services (ITeS)- BPO

IT Services
IT enabled Services (ITeS)- BPO
Growth opportunities in the IT industry
Growth for the IT industry occurs in two ways 1. By enhancing the domestic sales and

2. Escalating the value chain.

The IT industry is predominantly export oriented. It is involved in rendering lower end

services to their clients. Looking at the growth pattern below, it is observed that the

domestic sales are lesser than the exports. Therefore, it is imperative for the government

to take initiative and increase the domestic consumption. The brand image can be

strengthened provided the industry caters to providing higher- end services.

IT Value Chain
In 1970s the main challenges for software industry are

1. Rigid government rules:- Government of India restricted that all multinational companies
must invest their share less than 50 percent whereas Indian companies share must be more
than 50 percent.

2. Lack of trained personnel: - As already exited employees‟ skill does not match to the
organizations need, companies need to train the employees.

3. Heavy import tax: - As the companies need hardware to match the need of software
industry, they used to import from other countries in as India impose heavy taxes.

4. Education in India: - The courses in India do not match to the need of the companies, so
companies need to train in soft skills.

5. Updated Technology:- As the companies need to update technology, it seems to be a huge

cost.

NASSCOM
The National Association of Service and Software Companies (NASSCOM), India‟s
Software association was formed in the year 1988. The main aim of this NASSCOM is to
liberalize the policies of government regarding software companies, issuing of stocks in
capital markets, and improve infrastructure facilities [145]. NASSCOM provides most
reliable information about software industry in India. The role of NASSCOM is effective in
representing large scale enterprises but does not consider any small or medium enterprises. It
forced to establish Software Technology Park and with basic infrastructure facilities to export
software.

Software Industry- Impact on Indian Economy

Before 1990s the policies of Indian Government is very rigid if any oversees company want
to start in India. By that time the government does not have any foreign reserves, then the
government of P.V.Narasimha Rao, decided for liberalization, so that industries had started
tremendously [146]. Multinational Companies started to invest in India because they
identified huge manpower with low cost. This created a huge foreign reserves as well as
employment opportunities to young and fresh software engineers with high remuneration.

The IT industry has identified as a knowledge industry due to its Information Technology
Enabled Services (ITES) and IT services. The Business Process Outsourcing industry has
quickly developed with a sign of new initiatives. With significant growth of BPO and IT
industry, India has become one of the most chosen offshore destinations (source: The
NASSCOM - McKinsey Study 2002). Due to the tremendous growth of ITES industry results
a enormous inflow of foreign direct investments that have set up huge facilities all over the
India which results the entry of IT industry into the BPOITES sector.

The tremendous growth of IT-ITES sector in India, has contributed to the growth of GDP,
unemployment reduction and promotion of exports. The IT industry substantially contributed
to India‟s GDP 1.2% in FY 1998 to 7.5% in FY 2012[147]. The IT industry has proved itself
as job creating and wealth industry, in few years, employing several millions of software
professionals all over the world.

According to the report of NASSCOM, IT industry has added 1,60,000 employees in the year
2013, which provides indirect employment to 10 million people and direct employment to 3.1
million people . In the year 2014, IT services have increased to $99 billion. NASSCOM has
also forecasted that Indian ITES and IT industry is likely to grow around $300 billion by the
financial year 2020, particularly concentrating on the areas like software products and
ecommerce.

Y2K Problem as an opportunity

In 1993 the US Immigration made several restrictions to issue H-1 and B-1 visas and they
paid less salary to Indian employees and Indian software professional need to pay social
security and related taxes to US government which is a burden to the employees and also
companies. So, companies plan not to send them but to complete the project in India
according to the needs and wants of clients. This creates lack of talented personnel in US,
mean while Y2K problem also create an opportunity for Indian employees. In order to
overcome the Y2K problem US need the employees who are aware of COBOL programming
which has been outdated in 1990s, but in India still the language was taught, this helped the
employees to increase employment opportunities in India and abroad.

Revenue
The IT-ITES industry Revenue trends over the last five years is as follows
Exports

The segment-wise export revenue trends are shown in the following

Segment wise Export Revenue Trends in IT-ITES Industry during 2009-14

Domestic Revenues
The segment wise Domestic Revenue Trends over five years are tabulated as `follows

Segment wise Trends of Domestic Revenue in IT & ITES Industry during 2009-14
Segment wise Trends of Domestic Revenue in IT & ITES Industry during 2009-14

Employment Opportunities

The ITES and IT industry has generated a huge employment in the past and continues
the same trend. With e-commerce and social media, there is a great demand for
software professionals all over the world. In the year 2013, TCS hired 20,000 fresh
graduates all over India followed by Dell, Infosys, Wipro and IBM. After Bangalore
and Pune is the preferred city for these tech jobs in the country. Companies like HCL
Technologies, Cognizant Technology Solutions, Tata Consultancy Services,
Accenture, Capgemini, Amazon, Delloitte Consultancy and Microsoft Corporation
among others are highly investing in India. Cities like Hyderabad, Trivandrum,
Chennai, Delhi, Bangalore, Mumbai and Pune together are providing jobs to a huge
number of people.

The IT-ITES industry employment sector is estimated to reach 3.1 million in the
FY2013-14 and indirect employment is estimated about 10 million in the FY 2013-14.
The direct employment by the sector over the last five years is tabulated as follows.
Employment in IT -ITS industry during 2009-14

Employment in IT & ITES Industry as on 2009 to 14

Source: Reports of Dept. of Electronics and IT, Govt. of India

IT & ITES Industry in FY 2015

According to Nasscom, IT exports to grow 13-15% in FY 2014-15 to reach $97-99
billion. India‟s IT and ITES sector is estimated to have generated US$146 billion
revenues during FY 2015 compared to US$ 118 billion in FY 2014 with a growth rate
of 23.72%. The IT sector has contributed India‟s GDP to 9.5% in FY 2015 from 1.2
% in FY 1998. India has added 5.8 million employees to the talent pool in the
FY2015. According to the Department of Industrial Policy and Promotion (DIPP),
India attracted a huge Foreign Direct Investment (FDI) worth US$17.575 billion
between April 2000 and May 2015.

According to Nasscom report, the top 10 IT Companies are as follows [148]:

1. Tata Consultancy services Ltd

2. Infosys Ltd

3. Wipro Ltd 4. HCL Technologies Ltd

5. Tech Mahindra Ltd

6. L&T Infotech

7. Syntel Ltd

8. Mphasis Ltd

9. Genpact India Pvt. Ltd.

10. iGate

After a serious recession there was a speedy pick up of IT industries in India in 2013
scores more revenue rather than financial, Banking, and Insurance Sector.

Future of Software Industry

Indian software industry seems to be dazzling because all private and government
organizations are computerized to reduce manual work as well as manpower, huge
talented scientists, liberalized government policy, employees available with low
salary. The weaknesses are lack of updated infrastructure, lack of new product
innovation, lack of financial support.

The companies need to locate head office in India and implement corporate strategies
to meet international standards. Colleges need to train students in order to reduce the
gap between demand and supply in IT industry. The growth of E-commerce made
customers easy to purchase goods instead of going to marketplace.

Challenges of Indian Software Industry

1. Education System in India:-

 The education system in India is not updated and students does not have any
practical exposure. So, organizations must educate the students as per the global
needs.
2. Lack of Monitoring in Education sector:-
Generally AICTE (All India Council for Technical Education) only look after the
facilities in the organization, but other than other still there must some more
committees to guide the colleges in order to improve infrastructure as well as soft
skills needed for the students.
3. Lack of Project management skills: -
As students do not have management skills according to the corporate companies
creates huge cost to the organization.
4. Poor Communication skills: -
Students from rural background have good subject knowledge but unable to
express in English which a major drawback for students. Organizations must
motivate the students to inculcate communication skills before they complete their
education.
5. Lack of Industrial Experience: -
Students must have industrial exposure and update themselves according to the
needs of Industry. Along with bookish knowledge students should have practical
so that they can implement in corporate field.
6. Poor Infrastructure facilities:-
As the Colleges have poor infrastructure facilities is a major problem for students.
7. Impact of US economy:-
As most of companies depend on US for projects faced a severe problem during
recession. So, companies must concentrate not only on US but also other
countries.
8. Other resources:-
During recession Indian companies retrenched the employees because they do not
have projects, so companies need to look after not only Multinational projects but
also Local projects.
9. Huge cost:-
Companies specialized in particular technology can become obsolete after few
years, so companies (or) employees cannot work permanently, they want to
substitute with new technology.
10. Different legal laws and norms:-
As different countries have different legal laws and norms, companies need to
know every country laws before they invest.

CHAPTER-3
 THEORETICAL
BACKGROUND

Overview of the IHRM in Multinational Corporations

This chapter seeks to outline the role of IHRM in the globalized, changing environment of
Multinational Corporations. First, the factors that increase relevance of IHRM today are
discussed.
Then, a review is done on current HR practices and the management of international
assignments.
Finally, the challenges facing HRM today are emphasized.

Factors that increase relevance of IHRM today

Today, the business environment is changing constantly and multinational corporations have
to adapt to that in order to strive. This perspective also affects the role of Human Resource
Management, forcing it to become international in the way it manages people. The main
factors that increase the relevance of

HRM today are:

- Internationalization of Business

- Knowledge asset value

- Increase of technology

- Diversity as a competitive advantage

Internationalization of Businesses

If we were to measure the distance between countries in terms of economic integration we

would realize that actually we are not far away from each other at all. According to the WTO,
by the end of 2005, the number of Regional Trade Agreements already under negotiation that
concluded approached 300 (WTO, 2007). Today it is evident that the nations are closer
economically than ever before.

Internationalization is certainly a slow process for many small medium enterprises. In order
to have international presence, enterprises consider entry modes such as expanding facilities,
importing an exporting, mergers and acquisitions, joint ventures, franchising, and licensing.
In general, the large worldwide businesses tend to evolve from international to multinational
to a global structure (Zeien,1991). Take the case of Swedish Ingvar Kamprad, one of the
worlds richest business men who transformed a small business selling a variety of goods,
including matches, watches, wallets and jewelary into one of the largest, most successful,
privately held companies in the world, with over 200 stores in 31 countries, employing over
75,000 people and generating over 12 billion in sales annually. Today IKEA is the most
popular store offering a wide range of well designed, functional home furnishing products at
prices so low that as many people as possible will be able to afford them (IKEA, 2007).

SMEs are fully aware that a business plan that does not include internationalization is not
promising anymore and it is more likely doomed to fail by the entry of new, bigger, national
and international competitors. For instance, big giant China is now the worlds No.3 trading
nation, exporting and importing about $1.4 trillion worth of goods and services a year with an
unstoppable bilateral trade surplus with Western economies like the European Union and the
United States, thus affecting the neighboring countries. For example, since 2003 Chinas
exports have exceeded those coming from Mexico to sell in the United States, primarily in
telecommunications and computer parts, textiles, metals and electronic parts (CESOP, 2004).
Therefore, many entrepreneurial initiatives should consider the competitiveness present in the
international context which can directly affect the development of their business.
Furthermore, large MNCs that manage the decision making process ethnocentrically can
easily turn the companies promising future upside down. In the global arena cultural
differences do matter and should be taken seriously. Famous glass American company
Corning, Inc. learned this principle in 1992 when it joined-ventured with Mexican glass
manufacturer Vitro (Hodgetts and Luthans,2003).Although both companies seemed
compatible because they shared similar corporate cultures, twenty-five months after the
agreement the joint venture dissolved, making It evident that cultural clashes highly affected
the approach toward work.

Knowledge Asset Value

It has been said that one of the most critical determinants of an organization’s success in
global ventures is the effective management of its human resources (Cascio, 1995). This idea
became even more and more relevant as companies realized that the most valuable asset that
they possess is its people. Ultimately, an effective management of the human capital can
maximize the knowledge asset value within any enterprise which resides in the minds of the
people that work in it. Peoples experiences, background, education, ideas, and creativity
constitute an intangible, valuable asset that can leverage the competitiveness of companies
and enable them to determine how to make the right moves in the market place. One
experienced consulting firm points out that in the globalization context, many organizations
rely on knowledge to create strategic advantage. If they fail to do so, they will only waste
time trying to reinvent what already exists, missing out on the amount of expertise already
available. They continue by saying innovation and to enhance the value of products and
services (Skyrme,2003).

Increase of Technology

Evidently the complexity of managing global operations increases the need of the use of
technology in the Human Resource Management, but also the increase of technology has
helped organizations to increase levels of productivity and efficiency. One of the companies
who realized this is Rexel group, a worldwide leader in the distribution of electric materials,
whose growth in the last few years has been increasing mainly through acquisitions. Rexel
group is now present in over thirty countries and employs approximately 25,000 people. The
structural criteria aiming to operations abroad, a high number of subsidiaries and an
international orientation of management define this group as a Multinational Corporation
(Tixier,2004).
The Human Resource Management plays a strategic role to structure this group seeking
mainly to harmonize HRM practices to develop any changes between subsidiaries, while
providing a global vision to the head office. In order to accomplish this goal, the groups
human resource management decided to establish a common Human Resource Information
System across all the subsidiaries HR department. The HRIS seeks to provide an efficient
coordination mode by developing reporting tools to give global visibility of all the activities
and operational tools to help give local application. The implementation of this system also
should facilitate convergence, consistency and uniformity of all HR practices and policies.
The HRIS has served its purpose for this MNC and proven not only to be successful, butal so
necessary to achieve global and local coordination in HR practices (Tixier,2004).

Diversity as a Competitive Advantage

Diversity can be defined in many different ways. The opinions and definitions about
diversity differ from company to company. Oscar Gomez, vice president of Verizon
Communications' Office of Diversity and Business Compliance, said, "Our efforts to
diversify are to create a workplace environment that leverages the diverse characteristics of
our employee base, which will result in continued progress, increased profitability and result
in the branding of our company". Fenton Soliz, president of Wall Street Equity says "I've
learned it's not just black and white. It's all the various ethnic backgrounds, but equally
important it's men and women at all levels of management within the organization"
(Woller,2002).

However, it is hard to find a company that is more passionate about diversity than Johnson
and Johnson. This giant Health Care Company has recently become a family of consumer
companies with more than 230 operating companies selling products in over175 countries
and employing over115,000 people. It maintains a unique, decentralized management
structure which allows each company to manage its business locally.

At Johnson & Johnson, diversity is defined as a variety of similar and different characteristics
among people, including age, gender, race, religion, national origin, physical ability, sexual
orientation, thinking style, background and all other attributes that make each person unique.
The fact is that JNJ feels strong about diversity, to the extent they share it as part of their
credo in 36 languages across the continents. Diversity it is something they want to pursue to
the maximum because they are convinced that it fosters the exchange of ideas within the
workplace and encourages collaborative efforts and inspires innovation (DIA, 2007).

It is true that this Diversity Vision has developed to be more than a positioning statement of
values. Only five years ago JNJ created a Diversity University where “people learn to grow
and where they are provided with training and development tools in the context of this vision.
The DU developed a gateway where employees across the organization can access a wide
range of diversity related resources such as cultural awareness training tools, geographical
world map with country-specific content, e-learning, mentoring courses, international
assignments, leadership and rotational development programs. One of the purposes of this
initiative is that JNJ becomes the Employer of Choice in a dynamic global
environment(DIA,2007).

In an interview related to this topic with the CEO and VP of Johnson and Johnson, they
comment that diversity is the right thing to do” and they do it because they also think they
can gain market share from it. According to Vice-president, Frank Bolden doing diversity
will give them a greater appreciation and understanding of their customers and how to serve
their needs better. CEO, William C. Weldon, outlines that diversity should be
institutionalized in the way the do business. This means to accept the challenge of having
respect and dignity, to embrace diversity within the organization and to use that as a
competitive advantage. In other words, they want to own diversity and to make it part of our
everyday business (JNJ,2007).The complete interview can be found in Appendix A.

Recently, all Latin American JNJ companies were called for a videoconference to address
the latest acquisition of American company Pfizer. This acquisition caused many changes in
the organization such as downsizing, restructuring and training for the Pfizer employees to
understand JNJ Corporate culture. One of the directors stressed the fact that JNJ had to work
on developing emotional intelligence When asked what he meant by that, he further re
explained saying that emotional intelligence has to do with having empathy with people from
any culture so that they will be able to understand and satisfy their needs better. As far as the
discussion of their current strategy was concerned, it dealt mainly about the challenge of
merging and developing emotional intelligence as a competitive advantage (JNJ, 2007).
There are many benefits of diversity and building culturally diverse teams, but managing
them can also become quite complex. Currently, growing evidence has shown that culturally
diverse groups can enhance creativity, lead to better decisions and be more effective and
productive (Distefano, 2000). On the other hand, it can also create conflict among team
members which may hinder the development and team potential. Hodgetts and Luthans say
that some of the main problems associated with diversity are lack of cohesion, perceptual
problems, inaccurate biases and communication (2003).

Current IHRM Practices

Once the international context has been set for the Human Resource Management
Department, it is important to review the current IHRM practices to understand what
companies are doing in response to the global changing environment. Evidently it plays a key
role in shaping the future and development of the organizations.

Since the globalization of Human Resource marked a tendency of increasing levels of

decentralization, the practices follow this same pattern. However, not all practices are the
same. What works for one company might not necessarily work for another and so on
(Hodgetts and Luthans, 2003). However, one thing is clear and that is HR Manage mentis
becoming extremely relevant to companies. According to J.P. Morgan from the Foundation
for Sustainable Economic Development, Human Resource must shift from being an
administrative support function to becoming a business partner in developing the business
strategy (Morgan, 2001). This calls for what is known as best practices in HR, which is
applied in a variety of ways in many organizations. However, some of the main factors which
constitute best practices in Human Resource, according to Morgan, are: communications,
continuous improvement, culture consciousness, customer focus and partnering,
interdependence, risk taking, strategy, commitment, and value focus.

The main areas of Human Resource Management can be classified in this way as it is shown
in figure (HR, 2007):

 Workforce Acquisition
 Performance management
 Human Resources Management
 Organizational Development
 Benefits
 Executive Coaching
 HR Metrics & Measurement
 HR Outsourcing
 Training and Development
 Compensation
 HRIS/ERP (Human Resource Information System/Enterprise Resource Planning)
 Workforce Management
 Labor Relations
 Legal

Classification of Human Resource Activities

The main purpose for many MNCs as they transfer these areas into an international context
is to create a common corporate culture among all subsidiaries. In order to do so, they face
many barriers such as differences in social, economical and political circumstances, which
affect peoples perception and the way they do things and can cause resistance to change.
Language communication is also a barrier which leads to a lack of cultural knowledge and
understanding, a key aspect to advance in a todays global competitive environment. In
response to these barriers most MNCs believe that the key to creating a consistent corporate
culture across multiple locations is maintaining the critical balance between a strong
corporate culture and local cultural differences (Rioux et al, 2007).

International Assignment Management Review

Evidently the flow of people from one location to another for international assignments,
whether it may be for a short or long term period, is inevitable. The management of
international assignments implies demanding tasks and responsibilities for the IHR
Department, who has to create a system that ensures successful expatriation. It is their job to
provide with the necessary tools and assessment before, during, and after the international
assignment. It is worth mentioning that the financial cost for this whole process to take place
is quite high, plus the compensation package fr the expatriate. It has been estimated that the
cost of expatriate failure can cost a company between $250,000 and $1 million (Caudron,
1991). Consequently, more and more major corporations are considering outsourcing their
international assignment programs. According to Consultant Company, Executive Resource
Limited, this is happening because of growing demands placed on their human resources
managers, the need to focus on strategic business objectives, lowering the costs of
international assignment programs or making them more cost-effective,and the increasing
level of sophistication of providers. (ERL, 2007)

The aspects involved in the management of international assignments are summarized below
along with a description of the general practices stated in literature or carried out by
organizations. The stages are: Purpose, Selection, Preparation, Early Days, Three-to-Six
Months and the Return Phase (WFPMA, Haslberger and Esarey 2006)

Purpose

The first and most important phase is to define the purpose of the international assignment.
Once it is clear, the rest of the aspects adjust accordingly. The reasons for sending expatriates
abroad may vary depending on the purpose, which may include the following:
ƒ To fill a post where no local staff are qualified

ƒ To train local nationals to take over roles previously occupied by expatriates

ƒ To transpert ethnical expertise

ƒ To give employees international experience in preparation for more senior roles

ƒ To provide development opportunities for employees as part of talent management and

succession planning

ƒ To facilitate knowledge sharing between employees in different parts of the organization

ƒ To create an internal corporate culture and encourage employees to develop an

international mindset

Selection

Once the need and purpose for an international assignment has been established by the
company, the main question rises on who will be the person most adequate for the post.
Companies follow many selection criterions developed around key competencies, experience
and skills to make sure they have the right person for the right job. They consider many
factors such as gender, individual ability, expatriation duration, previous overseas experience,
marital status, family issues, dual assignment, cross-cultural adjustment and so on. Some
might also rely on results from the previous international assignment selection. There is also
a tendency to rely on the fact that the employees performance in the home country will be the
same as overseas; however, this is not always the case. Companies usually make use of
personality tests, identity assessments and an interview with the employee and the family in
order to find out if the individual not only has the professional requirements, but also the
cultural adaptability.

Preparation

Once the person has been selected according to the companies selection criteria, the
preparation stage comes into play. Basically, the company prepares the ground for the
expatriate and his family (if that is the case).The preparation for the assignments involves
some of the following tasks:
-Assignment and Career Planning

ƒ Give expatriates adequate and on time notice of the assignment

ƒ Communicate the duration of the assignment and establish the terms and conditions
relating to the return

ƒ Explain assignment and job description

ƒ Set the scenario of the assignment and the implications for the expatriate and his family

ƒ Undertake career planning in context the assignment

ƒ Exchange communication about career expectations before and after the job assignment

Assignment Compensations & Arrangements

ƒ Examine legal implications for the employees employment rights and the organizations
rights and obligations, both in the home and host country

ƒ Establish base salary and the currency it will be paid in

ƒ Describe how salary and allowances will be paid

ƒ Describe tax and social security contributions

ƒ Establish provision for children education (if needed)

ƒ Establish benefits such as pension, life, insurance, mental and dental cover

-Assignment Mobility

ƒ Find accommodation in the foreign country

ƒ Find school for the children

ƒ Find leisure activities and places of interest for each family member

ƒ Provide shipping of goods

-Assignment in the Cultural Context

ƒ Provide with solid insight into the new macro-and micro-environment

ƒ Prepare the families expectations

ƒ Provide Cross-Cultural Training for employee and family

ƒ Provide Language Training for employee and family

ƒ Arrange pre-assignment visits to the host country

The Early Days

The experience in the early days is critical and it deals mainly with the micro-environmental
factors or individual factors. Here, companies make use of coping strategies to relieve stress
and cultural shock.

ƒ Provide help with practicalities

ƒ Facilitate a social Network

ƒ Provide support from suitable experienced HR staff

Expatriation

From the third month and onward of the assignment in the host country, the macro-
environmental factors, such as the host country political, economical and social environment,
the climate, culture values, openness to strangers, and so on, become noticed by the expatriate
and his family. The organization assists in the following ways:

ƒ Follow up language and cultural training

ƒ Schedule a trip close to the region

ƒ Have contingency plan for Emergencies

ƒ Stay connected to expatriate and family

ƒ Follow up with employee and family experiences

ƒ Assess in cultural issues

Repatriation

The repatriation process is complex on its own and even theoretically different from domestic

relocation and expatriation. Some authors say that repatriation adjustment is as difficult if not
more difficult than the original expatriation adjustment (Black et al 1992). However, there is
less planning and effort put into than the expatriation process. It is possible to say that an
international assignment is not successful until the person has adjusted back in the home
country, which implies the inverse adjustment process of expatriation. Recently, more
attention has been given to this matter and companies try to assist expatriates in this process
in the following ways:

ƒ Provide post return and training orientation

ƒ Integrate employee back in the organization

ƒ Make sure that the position he/she occupies fits his/her needs and expectations according
to what was previously agreed

ƒ Organize focus groups to learn from the expatriates experience abroad

Challenges of the Internationalization of HRM Processes

As it has already been mentioned, the role of IHRM is growing due to highly global
competitive operations and it has become more and more strategic. In the past HR used to be
more centralized in the way they reported and managed regional departments. Today, half of
all international organizations reported having one primary HR department with independent
regional HR staff, which shows that the globalization of HR is now characterized more by
increasing levels of decentralization. The priorities for HR have also changed. For instance,
now international organizations are concerned for improving Global Leadership
Development, recruiting high-quality employees in the international labor market and
employee retention. The demands grow for a consistency of the HR practices among all
departments and the development of a common corporate culture despite local cultural
differences and barriers (Rioux et al, 2007).
In a survey,206 members of Development Dimensions International HR Benchmark Group
were asked to determine the most effective action to make HR practices more consistent
across all locations and offices. These were some of the responses (Rioux et al, 2007):

ƒ Develop a long-term HR Plan to ensure alignment of HR strategies/objectives with

corporate objectives

ƒ Create centralized reporting relationships around the globe

ƒ Standardized assessment, development and compensation practices

ƒ Introduced practices to regions around the globe and allow the HR function in each region
the autonomy to do its job

ƒ Share HR best practices used in certain locations with all other locations

It is true that Human Resource Management tends to have complex processes which make it
hard to adapt in the global changing environment. According to DDI’s research, the main
challenges facing HR remain as the following (Rioux etal,2007):

ƒ Coordination of activities in many different locations

ƒ Understanding of the continual change of the globally competitive environment

ƒ Building a global awareness in all HR department divisions

ƒ Creating and managing a multi cultural HR team