Unit-1

International Human Resource Management:

Everything you need to know about international human resource management. International
human resource management bears both functional and strategic resemblance to human resource
management.
Functionally, it performs almost the same set of activities as human resource management –
recruitment, selection, performance management, compensation, training, industrial relations,
career management etc. Strategically international HRM is closely linked to the business strategy
of the organization.
PulapaSubba Rao defines international human resource management as, performing HRM
and its related activities and arranging for related and necessary immigration facilities for
prospective and current expatriate employees, by organizations operating in domestic
and/or foreign countries
International human resource management differs from domestic human resource management
primarily in terms of the complexity associated with managing people across national
boundaries.
International human resource management deals with at least three types of employees
based on their country of origin:
1. Parent-Country Nationals (PCNs) – Employees belonging to the country where a company’s
headquarters are located are called as parent-country nationals or home country nationals.
2. Host-Country Nationals (HCNs) – Employees belonging to country where the company has
set up a subsidiary or a manufacturing facility are called host- country nationals.
3. Third-Country Nationals (TCNs) – Employees who work in the home or host country facility
of the company but are not nationals of either are called third- country nationals.
International HRM also means dealing with issues related to different countries, expatriation,
repatriation, cross-cultural issues etc.
DIFFERENCES BETWEEN NATIONAL AND INTERNATIONAL HRM;
Domestic HRM INTERNATIONAL HRM
Staff are placed within the boundaries Staff work outside the boundaries
Less number of rules and regulations Very high number of rules and regulationswhich are
to be managed; -mostly employment related to taxation, employmentrules, language
and taxation rules of the home country translating services, work permit etc.,
There is a uniform policy in Border perceptive management-has to be done
administration according to HCNs, PCNs and TCNs
No special attention into personal life Special attraction to personal life of expatriate
confined to creche and cultural employees-cultural training,schooling of
interaction children,employmentopportunities to spouse
Challenges are confined to of a IHRM management has to be ready to face
particular country challenges like underperformance of expertise
employees, diplomatic relationship between host
country and domesticcountry, currency exchange
rates which are variable and may impact benefits of
TCNS and PCNS

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Special training is not required for Special training is required for expatriates so that
Socio cultural adaption they might not face unnecessary hassles in alienScio-
cultural environment
Model of IHRM

The role of the IHR manager will differ and it depends on the international orientation of the
organisation. It is critical that managers must be able to interpret international organisational
strategy and develop IHR policies and practices which support that focus. As a strategic partner,
the IHR manager should equally advise senior management of any mismatch between stated
organisation internationalisation goals and actual IHR practice. In order to enhance the
competitive advantage of firm, the IHR professionals must focus on their international
competencies and learn about the basics of global business.
International human resource management

IMPORTANCE OF INTERNATIONAL HRM

Various threats generated by the liberalization of an economy can be met only through bringing
corresponding changes in management practices including practices related to International
HRM. In the newer management practices, more emphasis has been given to International HRM
because of the following factors:
1. Emphasis on Core Competency.
Post-liberalization, many organizations have started focusing on their core competence and
businesses are being organized around that. Core competence is a unique strength of an

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organization that may not be shared by others. This may be in the form of unique financial
resources (finance available at a much lower cost), manpower resources, marketing capability, or
technological capability. If the business is organized on the basis of core competency, it is likely
to generate competitive advantages. Because of this reason, many organizations have
restructured their businesses-divesting those businesses which do not match core competence
such as Tata Group divesting many businesses and acquiring Tetley, a UK tea processing
company, divestment of businesses by Voltas, Birla Group, etc. or acquiring those businesses
which fit core competence such as Reliance acquiring four yarn/fiber manufacturing companies,
Gujarat Ambuja acquiring cement companies, and so on. The organization of business around
core competence has changed the mindset and in this change, more emphasis has been given to
the human factor.
2. Reorganization.
Along with restructuring, there has been an emphasis on reorganization too. Many companies
are restructuring their organizational structure by thinning their management levels and
expanding the span of control. Thus, there is an emphasis on flat structure against tall structure as
followed earlier. The old concept of “seven layers in the pyramid and seven direct subordinates
under each boss” which has been the historic norm for many large companies in the past is
becoming extinct. Further, departmentalization based on functional lines is being changed to
strategic business unit departmentalization to focus more sharply on products or services. This
reorganization has created the need for additional skills on the part of the organizational human
resources which can be met by appointing new managerial talents or by developing the existing
human resources. The latter course of action is preferable because of the increasing competition
for human talents.
3. Competition for Human Resources.
With the entry of foreign firms into the Indian industrial scene, the nature of competition for
human resources has changed. Foreign firms, particularly those operating in sectors such as
consultancy, merchant banking, investment banking, etc., and computer software companies of
Indian origin, have put a lot of competition for acquiring managerial talents.
4. Technological Changes.
With the removal of restrictions on technology import and acquisition, many organizations have
opted for newer technologies. Increased use of computers has added another dimension to
technological innovation. As a result, old skills are fast becoming obsolete. In their place, the
operatives have to acquire newer skills which have increased the training needs in such
organizations, and HR departments have to be more active.
5. Need for Workforce Empowerment.
Throughout the world, there has been increasing emphasis on workforce empowerment, that is,
giving them authority matching their responsibilities. India cannot lag far behind because of the
international impact. For workforce empowerment, there has to be a change in mindset as well as
there should be a change in skills of the workforce. The role of HRM is crucial in both these
respects. With the increasing role of human resources and their management, organizations have
accorded HRM a higher status than what it previously was.

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ROLE OF CULTURE IN IHRM:
Culture is one of the most important factors affecting HRM practices. However, when we
consider international perspective of HRM, we find cultural diversity across the globe, that is,
culture of two countries is not alike. Cultural diversity exists on following dimensions:
The cultural dimensions according to Hofstede are:
1. Power Distance Index (PDI) – The degree to which the less powerful members of a society
accept and expect that power is distributed unequally.
2. Individualism versus Collectivism (IDV) – Preference for a loosely- knit social framework
in which individuals are expected to take care of only themselves and their immediate families.
The opposite of individualism is collectivism.
3. Masculinity versus Femininity (MAS) – Masculinity side of this dimension represents a
preference in society for achievement, heroism, assertiveness and material rewards for success,
whereas femininity, stands for a preference for cooperation, modesty, caring for the weak and
quality of life.
4. Uncertainty Avoidance Index (UAI) – The degree to which the members of a society feel
uncomfortable with uncertainty and ambiguity.
5. Long-term Orientation versus Short-term Normative Orientation (LTO) – Cultures low
on this dimensions, for example, prefer to maintain time-honoured traditions and norms while
viewing societal change with suspicion. Contrastingly, those high on this dimension have a more
pragmatic approach: they encourage thrift and efforts in modern education as a way to prepare
for the future.
6. Indulgence versus Restraint (IND) – Indulgence stands for a society that allows relatively
free gratification of basic and natural human drives related to enjoying life and having fun.
Opposite of indulgence is restraint.
The Hofstede center helps to understand how each nation features on these six dimensions and
hence can give a very definitive picture of its national culture. It also lets users compare two
national cultures.
WORKFORCE DIVERSITY
Workforce is the building block of any organization but there is workforce diversity in global
companies. Based on their place of origin, employees of a typical global company can be divided
into the following groups:

1. Parent-country national – permanent resident of the country where the company is headquartered.
2. Host-country national – permanent resident of the country where the operations of the company
are located.
3. Third-country national – permanent resident of a country other than the parent country and the
host country.
Further, workforce diversity can be seen in the context of employee mobility from one country to
another country for performing jobs. On this basis, an employee can be put in one of the
following categories:
1. Expatriate – a parent country national sent on a long-term assignment to the host-country
operations.
2. Inpatriate – a host-country national or third-country national assigned to the home
country of the company where it is headquartered.

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 3. Repatriate – an expatriate coming back to the home country at the end of a foreign
assignment.
Workforce diversity implies that various categories of employees not only bring their-skills and
expertise but also their attitudes, motivation to work or not to work, feelings, and other personal
characteristics. Managing such employees with pre-determined HRM practices may not be
effective but contingency approach has to be adopted so that HRM practices become tailor-made.
CHALLENGES AND EMERGING ISSUES IN  INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
There are certain problems and challenges as arising within the process and methods of global
HR scenario.
Some of the challenges and emerging issues in IHRM are:
1. Ethics and corporate social responsibilities
2. Bribery
3. Code of conduct for MNCs
1. Ethics and Corporate Social Responsibilities:
Ethics and corporate social responsibilities in the international business environment are always
debatable. MNCs have been accused of being indifferent to the problems of host countries as
they are more concerned about the profitability of their companies. MNCs have to balance the
ethics and moral of their country and host country.
i. Ethical relativist
ii. Ethical absolutist
iii. Ethical universalist
i. Ethical Relativist:
An ethical relativist believes that there is no right or wrong. What is right in a particular situation
in one place may not be so in another. Relativism offers flexibility but may prove to be
disastrous in the long-run for an MNC.
ii. Ethical Absolutist:
An MNC which believes in this approach is strongly influenced by the practices and policies of
its home country. They do not give much importance to the culture and values of the host
country. Ethical absolutists have been criticised for their arrogance and for showing little respect
to the traditions and culture of the host countries.
iii. Ethical Universalist:
An ethical universalist believes that there are fundamental rules which help us differentiate
between right and wrong. These rules need to be adhered to in any country and in any situation.
An ethical universalist believes that cultural variations between countries should not lead to any
wrongdoing on the part of the MNCs. There is a distinction between practices which are
culturally different and ones which are morally wrong. MNCs should understand this difference
and work towards achieving high ethical standards.
2. Bribery:
According to a survey conducted by J. Macken, developed countries give around $85 billion to
underdeveloped countries in the form of bribes. MNCs from developed countries have been
accused of bribing Government officials. Hence, countries should frame laws to prevent

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corruption. For example, in the US, there is a law called Foreign Corrupt Practices Act (FCPA),
which prohibits US- based firms from bribing officials in other countries.
3. Code of Conduct for International Business:
The first step in framing a code of conduct for international business players came in the form of
the Caux Roundtable Conference on ‘Principles for Business Conduct’ held in 1994. It was a
conference on international business ethics, held at Caux in Switzerland and was attended by the
business leaders from all countries.
The focus was to formulate a set of rules and ethical codes which would be used for
benchmarking global business practices. Major work on this issue was done at Minnesota centre
for corporate responsibility in the US. The main aim of Caux conference as given in the charter
is, “to further the twin value of living and working together and human dignity by promoting free
trade, environmental and cultural integrity and prevention of bribery and corruption.”

ORGANISATIONAL PROCESS OF INTERNATIONAL HUMAN RESOURCE

MANAGEMENT
An organization needs to consider the purpose for which it needs to send the employees for
international assignments. For example, an organization may send its employees aboard to set up
or explore a new market, or prepare them for top management positions. After the purpose of the
international assignment is specified, the organization can initiate the process of selecting the
best employees for the international project.
The following are the aspects of concern in IHRM:
i. International staffing
ii. Pre-departure training for international assignments
iii. Repatriation
iv. Performance management in international assignments
v. Compensation issues in international assignments.
i. International Staffing:

PCN----HOME --INDIA
HCN---HOST---USA
TCN----THIRD--UK

International staffing refers to the selection of the most appropriate employees for international
operations of an MNC.

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The selection of the most appropriate employees can be done by using the following three
sources:
a. Home Country or Parent Country Nationals (PCNs):
Refer to the citizen of the country in which the headquarters of the MNCs is located. PCNs are
not the citizens of the country in which they are working. For instance, an Indian citizen who is
posted to an overseas subsidiary of an organization that has its headquarters in India is a PCN. In
addition, PCNs are termed as expatriates.
Generally, PCNs are hired to occupy key and top-level management positions because they
possess sound knowledge about the operations of parent organization. The knowledge about
parent organization helps the PCNs in ensuring proper linkage between foreign subsidiaries and
the headquarters. However, hiring PCNs is a costly affair for an organization as it has to bear the
relocation cost for them.
b. Host Country Nationals (HCNs):
Refer to the employees of an organization, who are citizens of the country in which the foreign
subsidiary is located. An Indian manager working in an Indian subsidiary of a US organization is
an HCN. For example, IBM normally hires HCNs. In addition, HCNs generally occupy middle
and lower management level positions. The recruitment of HCNs is not a costly affair for an
organization because it does not need to incur extra cost in cross-cultural training of employees.
c. Third Country Nationals (TCNs):
Refer to the citizens of a country, other than the country where the organization is headquartered
and the country that is hosting the subsidiary. Staffing is done on the basis of ability and not on
the basis of nationalism. For example, a British citizen working in the Indian subsidiary of an
organization whose headquarters is located in the US, is termed as a TCN. You should note that
a TCN has substantial international experience and exposure that is quite advantageous for an
organization.
The approach of internal staffing differs from organization to organization.
Some of the popular approaches for international staffing are explained in the following
points:

INDIA-------USA
PCN HCN1

Polycentric:
Hcn---1s---2s—3s--
Geocentric:
In ---usa-----uk

a. Ethnocentric:
Refers to an approach in which all strategic decisions are made at headquarters and foreign
subsidiaries are endowed with very little autonomy. PCNs or expatriates occupy key positions at

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headquarters as well as in subsidiaries. They control all the critical areas of operation, such as
finance, production, and quality. McDonald’s is an organization that follows the ethnocentric
approach.
b. Polycentric:
Refers to an approach in which MNCs treat each foreign subsidiary as a distinct entity.
Therefore, each foreign subsidiary is provided with little autonomy to make its own decisions.
The MNCs, which follow polycentric approach recruits HCNs in their foreign subsidiaries. The
staff at headquarters comprises PCNs because HCNs are rarely promoted to key positions at the
headquarters.
c. Geocentric:
Refers to an approach in which the focus is on staffing the best employee for a particular
position. The geocentric approach is based on an integrated global philosophy. The MNCs
following the geocentric approach may recruit PCNs, HCNs, or TCNs for any position in the
headquarters or subsidiaries. The nationality of the candidate is not the key to staffing because
the MNCs focus on the ability of the candidate.
ii. Pre-Departure Training for International Assignments:
There are various cultural differences that exist between countries. No two countries have similar
or uniform cultural and societal norms and practices. For instance, the US society does not
believe in rituals, ceremonies, or formalities as Indians do. Therefore, employees should gain
knowledge and understanding of the country’s culture in which they are going to work.
It is the responsibility of the organization that its employees posted abroad should get proper
cross-cultural training. This training should focus on skills that are needed to attain success in the
international assignment and understanding cultural differences and socio-political environment
of the country. Therefore, cross-cultural training has become very important for MNCs.
Organizations, such as Coca-Cola, Procter & Gamble provide intensive training to their
employees to prepare them for international assignments. These training sessions are usually
conducted in the country where the employees are posted.
An organization must take into consideration the employee’s family, lifestyle, number of
children, and preferences for the successful relocation of an employee to a foreign country. The
organization should provide a pre-departure training to both employees and their families.
The pre-departure training, also known as expatriation, makes it easier for the employee to adjust
to a different culture and assume job responsibilities in an effective manner. The pre-departure
training covers three main aspects, such as language training, training to manage personal and
professional life, and cultural training.
In addition to providing a pre-departure training, the organization helps the employees in
relocating and finding transport and housing in the foreign country. It is important that an
organization maintains regular contact with the employees posted aboard and keeps them
informed about important organizational development and changes.
iii. Repatriation:
Repatriation is the process of bringing expatriates back to the home country after the completion
of the international assignments. For expatriates, the return of expatriates to the headquarters of
the organization within the parent country is accompanied with certain fears and anxieties
pertaining to readjustment in the old position and job responsibilities.

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It is important that the organization takes appropriate steps and initiatives to manage these
anxieties and make the re-entry of expatriate to parent country easier. For instance, an
organization may not have planned the return of the employee; therefore, he/she may have to
remain without any position/portfolio in the organization for a while.
In addition, the managers of the parent country fear that a foreign-return employee may get a
better position than them. The organization can resolve this issue by entering into a repatriation
agreement with the employee that specifies the maximum tenure of the foreign posting, the
nature and type of job he/she will be given upon return and the salary to be expected upon return.
In addition, the organization should assign a senior manager as a mentor for the employee posted
abroad to take care of his/her career interests.
iv. Performance Management in International Assignments:
Performance is the result of a combination of several factors, such as motivation, skills,
experience, ability, and working conditions. Therefore, these factors should be taken into
consideration to assess the performance of employees whether they are on international
assignments and domestic assignments.
Financial compensation offered to the employee must be in accordance with the skills, level of
responsibility, and the performance of the employee who is assigned an international project. If
the inadequate financial compensation provided to the employees, it may result in loss of
motivation.
The standards expected from employees and the tasks assigned to them must be clearly
communicated. In addition to cross-cultural, technical training should be provided to employees.
If employees fail to understand their roles and responsibilities and cultural differences, it will
adversely affect their performance.
A major problem with expatriate performance evaluation emerges due to dual loyalty of the
expatriate towards the home country (parent) as well as the host country. If there is a lack of
regular communication between the managers of host as well as home country, it becomes
difficult to understand and assess the contribution of the employee to the organization.
v. Compensating Expatriates in International Assignments:
One of the most important and complex aspects of IHRM is related to expatriate compensation
(compensation given to employees posted abroad). Different norms of compensation are
followed by different countries. An organization often adheres to the compensation laws of the
country in which the expatriate is posted. Compensation is an important motivational tool for
employees.
If the employees are not adequately paid for their services rendered, it may lead to dissatisfaction
and loss of employee morale. An organization should make flexible plans that can be changed as
per the industry norms and standards prevailing in different countries to accommodate particular
needs of employees posted in different locations.
While designing the compensation package of expatriates, their needs and aspirations must be
taken into consideration, as different expatriates have different sets of needs. For example, if
expatriates live close to the office premises, they would not need a travel allowance, whereas the
other one who stays far off may require a travel allowance. An expatriate may feel that money is
the sole motivator, whereas another expatriate may feel that non-financial rewards in the form of
recognition, challenging tasks, and innovative projects are far more motivating.

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Therefore, an organization must identify the needs and aspirations of expatriates and accordingly
provide them with appropriate compensation. For instance, Americans value performance-linked
pay plans as they feel money is the main motivator. However, Japanese and Indians feel more
satisfied and content with non-financial incentives, such as prestige and recognition.
Expatriate compensation must be just, fair, and equitable and in accordance with the
international compensation norms. There are numerous factors, such as country’s compensation
laws, cost of living, taxation policies, and currency value, which play an important role in
determining the compensation packages of an expatriate. In addition, health benefits and
insurance can be a part of expatiate compensation. An expatriate can also be compensated for the
cost of housing and schooling of children.
OBJECTIVES OF INTERNATIONAL HUMAN RESOURCE MANAGEMENT
Within present business scenario, there are larger number of organisations conduct business
beyond national boundaries. The differences in organisational environment across nations have
encouraged to determine and develop international HR staffing and practices. At global scenario,
it is needful to study about HR hiring, staffing developing, compensating and appraising HR for
better utilisation of people.
International Human Resource Management is the process of managing people in international
ventures and involves activities in at least two nations.
It is fact that the success of business and trades are depends on the skills and quality of human
resources and how effectively these resources are managed and utilised at international level.
1. It enhances to develop managerial skills, organisational knowledge and technical abilities of
HR managers and employees;
2. To develop more and better handle of global business operations;
3. To manage and secure the performance, compensation and career path of employees;
4. To manage and organise cross cultural counselling and language training programme;
5. To develop more feasible understanding of work practices at global levels;
6. To raise and develop better and new performance management of human resources;
7. To get more and more opportunities within global HR scenario;
8. To develop better and competitive HR strategies in global competitive scenario;
9. To reduce the cultural differences as amicable for cultural environment.

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