Lecture Outline

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Human Resource Information Systems and

International Human Resource Management

CHAPTER OBJECTIVES
After completing this chapter, you should be able to do the following:

 Understand the differences between domestic-only and international HRM

 Identify the types of organizational forms used for competing internationally

 Understand the different types of employees who work in MNEs

 Discuss the staffing process for individuals working in MNEs

 Understand the problems that handling expatriates poses for the IHRM
department

 Describe the training needs of and programs for international assignees

 Reconcile the difficulties of home-country and host-country performance

appraisals

 Identify the characteristics of a good international compensation plan

 Understand the modifications necessary for using HRIS applications in

IHRM

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INTRODUCTION: INCREASTING IMPORTANCE OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
 Perhaps one of the major changes in the world’s business economy has been
the formation of regional free-trade zones.

 The passage of the North American Free Trade Agreement (NAFTA) in

1994 established the world’s largest free market, increasing trade between
Mexico, the United States and Canada.

 Subsequently, the European Union (EU) was formed and includes over 25
member countries (a membership that’s still growing) engaged in free trade.

 Other trade agreements, such as the Association of Southeast Asian Nations

(ASEAN), the East Asia Economic Group, the Asia-Pacific Economic
Cooperation (APEC), and the South Asia Association for Regional
Cooperation (SAARC), have improved trading relationships in Asia.

 As illustrated in the diagram in Chapter 1, organizational functioning is

contained within a national culture envelope. The host country and its
culture will affect all of the factors in the external environment: government
regulations, labor market, societal concerns, technology, HRM research, and
competition.

 There are a variety of factors that have led to the increased globalization of
business and increased the importance of the IHRM function. These factors
include the following:

o Imported products have increased competition in every nation. Global

competition has increased dramatically.

o Deregulation in the United States, Germany, and other industrialized

countries has changed the domestic business environment in those
countries. There has been increased market accessibility.

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 o An increase in international mergers and acquisitions

o An increased awareness of the existence of talented human capital in all

countries of the world. This availability of talented individuals has helped
the globalization process. Globalization means managing human
resources around the world.

 One cannot overlook that one of the major factors is the availability and cost
effectiveness of computer technology.

TYPES OF INTERNATIONAL BUSINESS OPERATIONS

International Corporation

 An international corporation uses its existing core competencies to expand

operations into foreign markets. These organizations compete in the global
marketplace by exporting existing products and eventually opening facilities
in other countries. While their corporate headquarters reside in the parent
country, international corporations have foreign operations in one or more
host countries.

 This type of international business operation presents various unique

challenges for the HRM function of the organization. Two issues
particularly relevant to international corporations are the host country’s
legal system and the host country’s national culture.

 A legal issue might arise because of a country’s minimum wage, for

example. In some countries, the minimum wage is relatively high, driving
up labor costs. Examples of cultural differences affecting international
corporations are communications and morale problems.

Multinational Corporation

 A multinational corporation is a more complex international business

operation. Multinational corporations operate as fully autonomous units in
multiple countries in an attempt to capitalize on lower production and

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 distribution costs. An example of a multinational corporation is General
Motors (GM).

 The HRM issues experienced by multinational corporations are similar to

those encountered by international corporations, only exacerbated.

 One approach taken by multinational corporations has been to hire

expatriates from countries other than the parent country to help with staffing
and management issues.

Global Corporation

 Global corporations are similar to multinational corporations; however, the

global corporations integrate their worldwide operations through a
centralized home office. Multinational corporations produce and distribute
identical products and services worldwide. Global corporations, on the other
hand, emphasize flexibility and mass customization to meet the needs of
differing customer groups worldwide.

 Due to the integrative international focus, global corporations must manage

their human capital through a transnational HRM system. This type of
system is characterized by three attributes:

1. It is essential that HR decisions are made from a global rather than a

national perspective.

2. It is important that the company’s management is composed of people from

all over the world.

3. It is imperative that decision-making and planning processes include people

from a variety of cultures and backgrounds.

Transnational Corporation

 A transnational corporation uses an HR approach that is locally

responsible to its country location and is focused on being highly efficient,
plus emphasizing learning and sharing.

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Although these distinctions among MULTINATIONAL ENTITIES (MNEs) are

important, the actual structure of the MNE determines its effectiveness. There is no

“best structure” that fits the distribution and marketing needs of all MNEs. Perhaps

having a flexible approach to structure is the best way to manage an MNE.

Going Global
 There are a number of challenges that organizations face when going global.
The top four—cultural differences (47%), lack of resources (40%),
technology/systems issues (39%), and time zone differences (35%)—are
among the top IHRM-related challenges facing global organizations.

 As noted by Beaman (2009), “As expected, the majority of global data

maintained is in the core HR (86%) and compensation (71%) areas—the
most basic types of information and the most mature areas of HR systems
deployment” (p. 4). Note that performance (45%) and payroll (42%) global
data are maintained by just less that half of the respondents, whereas talent
and benefits have the least global HR data.

Differences in HRM in MNEs

 There are the three different types of employees in a typical MNE, as

opposed to one type in a domestic firm.

 MNE employees include parent-country nationals (PCNs), host-country

nationals (HCNs), and third-country nationals (TCNs). Parent country refers
to the country in which the corporate headquarters of the MNE is located
while host country refers to the location of subsidiaries. Obviously, TCNs
are employees from countries other than the parent or host countries.

 In addition to the three different types of employees, there are also other
factors that affect the complexity of IHRM. The complexity of international
HR can be attributed to six factors: (1) more HR activities; (2) the need for a
broader perspective; (3) more involvement in employees’ personal lives; (4)

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 changes in emphasis as the workforce mix of expatriates and locals varies;
(5) risk exposure; and (6) broader external influences.

Managing Different Types of Employees in MNEs

 MNEs are shifting from an expatriate-focused workforce to a global

workforce. Thus, it is important to understand a number of cultural
differences between expatriates and the host- and third-country workforce.

 Global Diversity and Inclusion: MNEs, in their search for human talent,
are focused on a worldwide labor market. This search for new employees as
businesses recruits must take account of cultural differences in countries.
The arguments for increased diversity and inclusion have their basis in equal
employment legislation. However, two additional reasons for increasing
diversity and inclusion in MNEs are as follows: (1) the moral issue of
discrimination in hiring and promotion on the basis of gender and race and
(2) the business case reason that increasing diversity and inclusion will
improve the financial position of the MNE. The EIU researched the
diversity readiness of 47 countries to create the Global Diversity Readiness
Index (DRI), an online spreadsheet tool that is available on the SHRM
website (www.shrm.org/diversity).

 Cultural factors include education, politics and law, and economics.

Education. Having a workforce of PCNs, HCNs, and TCNs means the educational

level of the workforce will be highly varied. It is important for managers to

understand and deal with the human capital needs of a highly diverse workforce made

up of individuals (1) coming from different cultural backgrounds, (2) possibly

speaking different languages, and (3) having different educational experiences. These

education differences require that managers provide a supportive work environment

for their employees. One important aspect of support is training on (1) cultural

differences, (2) verbal and nonverbal communication, and (3) specific skill sets

particular to the employee’s job.

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 Political and Legal Systems. The type of HRM practices adopted and how these

practices are used will be determined by the political and legal system of the host

country. The laws and regulations of the host country are determined in part by the

societal norms of that country.

Economic System. The economic system of the host country is one determinant of

the way in which HR programs and practices are used. The economic system affects

human capital through its compensation system.

HR PROGRAMS IN GLOBAL ORGANIZATIONS

International Staffing

 The complexities inherent in managing a global organization make

staffing an especially important part of the IHRM system. When staffing
managerial and nonmanagerial positions, the MNE needs to determine if
these personnel will be selected from the home-country, host-country, or
third-country talent pool.

Selecting Global Managers: Managing Expatriates

 One of the most difficult but important responsibilities of the IHRM

function is the selection of managers from the parent country, commonly
referred to as expatriates, for assignments in the host countries.

 Most of the literature on this topic is focused on the selection of

expatriates, whether they be PCNs, HCNs, or TCNs. The reason
expatriates can be from any of these three categories is that at the
managerial level in an MNE, these individuals will move from country
to country to gain international experience for their career development
regardless of their home country. Thus, the term expatriate will be used
to designate global managers, regardless of the home country.

 It is very difficult to be successful in selecting expatriates due to the

following factors: (1) the cultural environment of countries, (2)

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 expatriate failure and its causes, and (3) selection criteria and procedures
for expatriates.

o The Cultural Environment of Countries. One of the most important

aspects of an expatriate’s job that will significantly affect performance is
his or her interaction with the local government and people of a country.
Most expatriates will experience culture shock as they move from country
to country within an MNE. Culture shock is the adjustment that occurs in
a relatively short time when moving from one country to another.

 Culture has been defined as the collective programming of the

mind that distinguishes the members of one group or category
of people from another.

 The following elements that differentiate countries in terms of

their cultural environment for international business: (1)
education/human capital, (2) values/ideologies, (3) social
structure, (4) religious beliefs, and (5) communication.

Expatriate Failure and Causes

 Expatriate failure is defined as the return of an expatriate to the home

country before the period of the assignment has been completed.
Expatriate failure represents an error in a selection decision. The reason
there is such an emphasis on expatriate failure is because of its costs to
the MNE.

 The two categories of costs are direct and indirect. Direct costs include
the actual money spent on selecting and training, relocation costs for the
expatriate (and family), and salary. Indirect costs are harder to quantify,
but they could include loss of market share in the country, negative
reactions from the host-country government, and possible negative
effects on local employee morale.

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  What are the causes of expatriate failure? A major factor affecting
expatriate failure is the inability to adjust to the new situation and
culture by the expatriate and her or his family.

The problems reported by expatriates and companies are as follows:

o spouse/partner dissatisfaction,

o inability to adapt,

o difficulties with family adjustment in the new location,

o difficulties associated with different management styles,

o culture and language difficulties, and

o issues associated with the accompanying partner’s career development.

Selection Criteria and Procedures for Expatriates

 The factors involved in the selection of expatriates can be divided into

two general categories: individual and situational.

o In the individual category are technical ability, cross-cultural

suitability, and family requirements.

 Technical ability is quite clear and would include both

managerial and technical skills.

 The second individual factor, cross-cultural suitability, has

several aspects, including language ability, cultural empathy,
adaptability, and a positive attitude toward the assignment in
the specific country being considered.

 The third individual factor, family requirements, is often

cited as a cause of expatriate failure. The adjustment of the
accompanying spouse/partner and children has been well
documented as one of the major causes of expatriate failure.

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 o The situational factors that affect the assignment situation are
country/cultural, language, and MNE requirements. Country/cultural
requirements could include work permits and visas. The opportunity for
the spouse/partner and the children to learn another language is
sometimes seen as a benefit of the international assignment. MNE
requirements could involve getting permission from the host country for
the selection of any expatriate.

o Selection of expatriates is a critical function of IHRM, particularly in

MNEs where expatriate assignments are used to “groom” managers for
higher levels of management. Many of the factors to consider in selecting
expatriates and the factors causing expatriate failure are handled by
training. However, the software applications available can greatly reduce
the time required to make this process work.

TRAINING AND DEVELOPMENT OF EXPATRIATES

 Training and development activities and programs in MNEs also include

expatriates and nonmanagerial employees of all types: PCNs, HCNs, and
TCNs. Since traditional training and development were covered in detail
in Chapter 13, the use of an HRIS and its applications will still be
discussed.

 The corporate IHRM department has responsibility for all training;

however, this responsibility is usually decentralized by delegating it to
the MNE’s subsidiaries. Most of the local training for nonmanagerial
employees will vary by different geographic locations of the MNE.

Purpose of Expatriate Training

 The dual purpose of any training program is to inform and motivate

employees. In addition to these two purposes of training, the first
specific purpose of expatriate training is to supplement the selection
process and assist the expatriate and her or his family in adjusting to the
new situation. The training program content for expatriates is based on

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 both the selection criteria identified above and the causes of expatriate
failure.

 The second specific purpose of expatriate training is economic. When

one calculates the potential direct and indirect costs of expatriate failure,
the amount of the investment is obvious. The MNE makes a major
investment in selecting employees for placement in its subsidiaries, and
training programs are another IHRM element used to protect that
investment.

Predeparture Training

 Since one of the major causes of expatriate failure is the dissatisfaction

or lack of adjustment by the spouse, partner, or family, the inclusion of
these people in predeparture training is very important. To assist the
adjustment of the expatriate and his or her family to a new culture,
predeparture training typically includes training in cultural awareness,
language, and practical matters regarding daily living in the new culture.
Most MNEs will also include preliminary visits as a part of predeparture
training.

 Another element in predeparture training that is highly recommended is

repatriation training. Repatriation is the process that occurs as the
expatriate and family return to their homeland.

Transfer of Training

 Predeparture training should not be viewed as a “one size fits all” but
rather that the training design and program should be contingent on other
factors in the expatriate assignment. The two factors that most affect
predeparture training design are (1) the dissimilarity between the
expatriate’s native country and the host culture—low to high—and (2)
the expected amount of interaction between the expatriate and members
of the host country—low to high.

 Based on an analysis of these two factors, the design of the training

program can then vary on three dimensions: (1) the training methods

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 used, (2) the level of training rigor, and (3) the duration of the training
program.

Performance Appraisals in MNEs

 Performance appraisal is an important process for documenting the
performance of employees, determining areas for development, deciding
on pay increases and promotional opportunities, and giving employees
the opportunity to express their views. The inclusion of plants with a
diverse employee population in multiple countries creates considerable
complexity, particularly when the results of the appraisals are being used
to move managers from country to country.

 Most vendors of HRIS products have packaged available software

applications that can be modified for local conditions in each specific
country.

Appraising Expatriate Performance

 Important considerations in the appraisal of expatriate performance are

who should conduct the appraisal and what performance criteria are
specific to the expatriate’s situation. The performance of employees is
appraised by their supervisor. Managers of expatriates tend to base their
evaluations of the person on the objective criteria used for other
employees in similar positions located in the parent country.

 Because of these complexities, it may be most appropriate to obtain

multiple ratings of the expatriate’s performance through the use of a
360-degree feedback system.

 Ratings of the expatriate manager’s performance could be garnered from

his or her superiors, peers, and subordinates in the expatriate assignment,
as well as from the expatriate himself or herself. This would provide a
clearer picture of the expatriate’s total job performance.

What Performance Criteria Should Be Appraised?

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  It is important to evaluate the specific job-related competencies of the
expatriate manager. However, assessing the competence of an expatriate
is somewhat more complex in that there are qualities they need to
possess to perform their role effectively.

 In addition to typical task and contextual performance behaviors,

expatriates should be assessed on other behaviors such as cross-cultural
interpersonal skills; sensitivity to differences in norms, laws, and
cultures of various countries; and the ability to adapt to uncertain and
unpredictable circumstances.

Appraising Host- and Third-Country Nationals’ Performance

 Appraising the performance of HCNs and TCNs is somewhat different

from appraising the performance of domestic employees in the United
States. It is important for PCNs to be sensitive to cultural differences
when appraising performance. For example, in Japan, discussing the
negative aspects of an employee’s performance may be taken as an
insult.

 This perception is important since performance evaluations are used to

determine pay increases and promotional decisions, training
opportunities, and dismissal decisions. These appraisals can help
identify individual performance problems that can be solved by training.

Managing International Compensation

 The management of compensation in an MNE is one of the most
complex but critically important functions of the IHRM department. Its
complexity comes from having a mix of PCNs, HCNs, and TCNs within
one company and, thus, having to handle wage, salary, and benefits
information that differs across countries.

 The HR compensation manager must be aware of differences in taxation,

labor laws affecting compensation and benefits, currency fluctuations,

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 and cost-of-living differences within and between countries where the
MNE has a presence.

 The criticality of compensation and benefits management by the IHRM

rests, in part, on the effects that salary and benefits have on employee
motivation.

 The other reason for the critical importance of compensation

management in subsidiaries is its link to the strategy of the MNE.

The Objectives of International Compensation Policy

 The first objective for an MNE is to align its compensation

administration with the strategy of the firm. Compared with the
domestic firm, this alignment is much more complex for the MNE. It
requires the MNE to have accurate and up-to-date labor market
compensation information for all the countries in which the MNE has a
presence.

o This requirement is one of the most powerful advantages of having an

HRIS with labor market information for the HR department. Reports
generated from the HRIS would be much more complex in an MNE since
multiple countries would be involved, but compensation administration
can serve several motivational purposes. It must motivate employees to
(1) join the firm, (2) be productive while members of the firm, and (3)
stay with the firm.

 The MNE’s second objective is identical but more complicated since

multiple cultures are involved. There are clear differences across
world cultures in terms of the other factors that motivate employee
behaviors. For example, the meaningfulness of the work may be very
important in some cultures, whereas the opportunity for promotion
would be most important in other cultures.

 The final objective of compensation policy for an MNE is that it

must be perceived as fair by the employees. With the mix of

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 employees from different companies (PCNs, HCNs, and TCNs),
perceived or real differences in wages or benefits between groups of
employees could lead to considerable dissatisfaction among the less
privileged groups and, consequently, affect retention of employees.

The Components of International Compensation Policy

 Are similar to those in a domestic company in that compensation

administration has a very close relationship with the strategy of the firm.

The Components of International Compensation

 The major components are a base salary and a set of benefits.

However, extra pay premiums would be much more complex for an
MNE. For example, there may be a foreign service or hardship premium
for expatriates, whether they are from the parent or a third country.

 MNEs must also use between- and within-country cost of living

adjustments (COLAs) to have an equitable compensation system.

Two Approaches to International Compensation

 Going rate approach. In the going rate or host-country approach, the

base salary for international employees is tied to the salary levels in the
host country. For example, an expatriate would earn pay that is
comparable with the salaries of employees in the host country. It should
be obvious that HRIS applications for compensation based on the going
rate would be useful for establishing initial compensation levels,
particularly for expatriates. Having this database would also be quite
useful for handling complaints by any MNE employee regarding the
equity of his or her compensation.

 Balance sheet approach. The balance sheet approach has as its goal the
maintenance of a home-country living standard plus a financial
inducement for accepting an international assignment. Although this
approach would appear to be more attractive to the expatriate, it has the
disadvantage for the IHRM department that it can be very complex to

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 administer. Although the use of software applications and reports from
an HRIS can assist in untangling these objective and probably perceived
inequalities, it still requires the IHRM professional, along with line
managers, to explain these programs to employees.

 To summarize, compensation is probably the most difficult and complex

of the HR programs to implement and administer in an MNE. However,
it is critically important to the equity exchange (or psychological
contract) between the company and its employees.

HRIS APPLICATIONS IN IHRM

Introduction

 It should be apparent from the previous sections of this chapter that

management—and HRM, in particular—in an MNE is exceedingly
more complex than in a domestic firm. International companies in the
past were hampered by the lack of sources for and the slowness of
transmission of important HR information for effective management
decisions. With the current technologies available, difficulties in
executing the basic HR functions of planning, recruiting, selecting,
training, and managing performance in MNEs have been reduced.

Organizational Structure for Effectiveness

 The issue of the most effective structure for the operation of an HRIS in
an MNE has been a “moving target.” The most common advice
regarding the management of an MNE has been to “think global, act
local.” However, it has been argued with the changing nature of global
business that MNEs should “think local, act global” for HRIS in
MNEs.

 A well-established piece of advice in the management literature has been

that “structure does not drive success—people do.”

IHRM-HRIS Administrative Issues

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  Service-oriented architecture (SOA). One of the most important
approaches for handling administrative issues in an MNE is the use of a
service-oriented architecture (SOA). An SOA is a paradigm for
organizing and utilizing distributed [computing] capabilities that may be
under the control of different ownership domains . . . providing a
uniform means to offer, discover, interact with, and use capabilities to
produce desired [business] effects.

 SOA is focused on providing a service for a function that is well-

defined, self-contained, and context and platform independent, a
function that adds value to the organization’s business purpose rather
than simply being focused on the technology itself. Creating an SOA
was a way to use the IT capabilities of an organization more efficiently
and would fit the needs of the IHRM function of an MNE.

 Outsourcing, Offshoring, and Insourcing. MNEs were the first

organizations to outsource many of their jobs that required low levels of
skills (e.g., call centers). Later many traditional IHRM functions like
recruiting and selecting were outsourced.

 There are tremendous financial benefits associated with outsourcing or

offshoring; however, many fail because companies outsourced or
offshored HR functions that were a critical part of the primary business
of the organization—for example, talent management. Thus, many
companies reverted to insourcing certain business processes, particularly
those in the HR department.

 Data Privacy and Security. The general cautions and guidelines for
maintaining data privacy and security given in Chapters 3, 10 and 16
also apply to MNEs. In addition to the normal safeguards used in a
domestic company, the MNE has to create additional ones to be in
compliance with security and privacy laws and regulations in different
countries.

HRIS Applications in MNEs

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  Two issues arise when data are shared across wide geographic locations.
These are (1) managing the day/time of a transaction and (2)
determining where to store the various components of the business
application, DBMS, and database.

 To deal with the date and time issues, developers of DBMS such as
Oracle, MS SQL Server, and IBM DB2 are building the capability to
deal with recording dates and times according to the time zone in which
the data originated. So, for example, if a database is stored in London
and an employee records a transaction while sitting at a terminal in Los
Angeles, in addition to the time (say 1 p.m. in Los Angeles), the time
zone (−08:00 Greenwich Mean Time) is also stored with the transaction.

 As part of a global information system design, organizations have

chosen to break their business application and DBMS into components,
often called tiers. Traditional client–server architectures broke an
application into two tiers, typically with the user interface and some
business logic on the user’s computer, such as a PC (the client) and the
database and mainstream parts of the application stored on a server. In
today’s global environment with high-speed data networks, N-tier
architectures exist with databases and applications being distributed
among many different computers around the world.

 A centralized database allows a company to confine its data to a single

location and, therefore, more easily control data integrity, updating,
backup, query, and control access to the database. A company with
many locations and telecommuters, however, must develop a
communications infrastructure to facilitate data sharing over a wide
geographical area. The advent of the Internet and a standardized
communication protocol made the centralized database structures and
geographically dispersed data sharing feasible.

CHAPTER SUMMARY

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Globalization is a reality. Twenty-five years ago, it was the reality primarily for major

corporations such as GE and IBM. Now, it has become increasingly important for

midsized firms—the fastest-growing group in all countries. This chapter has

examined the implications of this globalization on the HRM function in MNEs and

has documented the explosion of the HRM function into a separate field, IHRM. How

IHRM has become increasingly complex by expanding on the traditional HR

functions of selection, training, and compensation was also covered. The complexity

of having a diversity of employees (PCNs, HCNs, and TCNs) and of contending with

the varying laws and practices of the countries dictated that MNEs abandon the paper-

and-pencil system for computer technology.

The advantages of having employee information stored, manipulated, and reported

using computer technology were discussed relative to the use of these capabilities in

multiple IHRM programs. However, some of the more critical information that an

HRIS can store, analyze, and produce reports on is the cultural and legal profile of

countries. This information is valuable in all of the activities and programs of the

IHRM department and significantly influences the management of the many parts of

an MNE.

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