EVOLUTION OF INTERNATIONAL BUSINESS

INTRODUCTION

International Business is the process of focusing on the resources of the globe and objectives of the
organizations on global business opportunities and threats, in order to produce, buy, sell or exchange of
goods/services worldwide sell or exchange of goods/services worldwide.

Evolution of International Business

The 1st phase of globalization began around 1870 and ended with the World War I(1919) driven by the
industrial revolution in UK, Germany & the USA.

 The import of raw materials by colonial empires from their colonies and exporting finished
goods to their overseas possessions was the main reason for the sharp increase in the trade
during this phase.
 The ratio of trade to GDP was a high as 22.1 in 1913. Later various Governments initiated and
imposed a number of barriers to trade to protect their domestic production that led to decline
in the ratio of trade to GDP to 9.1 during 1930s.
 The International trade between two World Wars has been described as “a vast game of beggars
–my-neighbor”.
 World nations felt the need for international cooperation in global trade and balance of
payment affairs. These efforts resulted in the establishment of the IMF & International Bank for
Reconstruction and development (IBRD)/World Bank.
 The prolonged recession before the World War II in the West led to an international consensus,
consequently 23 countries conducted negotiations in 1947 in order to prevent the protectionist
policies and to revive the economies from recession aiming at the establishment of International
Trade Organization. This attempt of advanced countries ended with the General Agreement On
Trade & Tariffs (GATT) that provided a framework for a series of rounds’ of negotiations by
which tariffs were reduced.
 Later GATT was replaced was replaced by WTO on 1 st January 1995 envisaging trade &
liberalization.
 Scope of international trade expanded into international marketing is expanded into
international business.

Drivers of Globalization
 The shifts of globalization and international business have been at a fast rate after 1990s.
 The drivers of globalization/factors contributing to the globalization including-
1. Establishment of WTO (1 Jan 1995).
2. Emergence and growth of regional integration.
3. Decline in trade barrier.
4. Decline in investment barriers.
5. Increase in FDI.
6. Technological changes and growth of MNCs.
Note- The value of exports increased by 487% and import increased by 480% after the
establishment of WTO.

Foreign Direct Investment-The investment made by a company new manufacturing and/or

marketing facilities in a foreign country is referred to as FDI.
 Influences of International Business
 Conducting and managing international Business operations is a social, cultural & economic
factor from one country to another country. For Example- African people /consumer prefer
cheaper product due to their weak economic condition on the other hand German
consumers prefer high priced quality products .

Stages of Internationalization
1. Domestic Company – Those companies analyze the national environment of the
country; formulate the strategies to exploit the opportunities offered by the
environment. The unstated motto of domestic companies never thinks of growing
globally.

2. International Company- some of the domestic companies, which grow beyond their
production and/or domestic marketing capacities, think of internationalizing their
operations.

 The companies who decide to exploit the opportunities outside the domestic country are
the stage two companies.
 Focus of these companies is domestic but extends the wings to the foreign countries.
3. Multinational Company- Sooner or later, the international companies learn that the
extension strategy (i.e. extending product, price, promotion to foreign market will not
work.
4. Global Company- A global company is the one, which has either global marketing
strategy or a global strategy.
 Global Companies either produce in home country or in a single country and focuses on
marketing these products globally or produces the products globally or focuses on
marketing these products domestically.
5. Transnational Company- Transnational Company produces, markets, invests & operates
across the world. For example- Coca Cola.

International Business Approaches

1-Ethnocentric Approach
2-Polycentric Approach
3-Regiocentric Approach
4-Geocentric Approach

Terminologies related to IHRM

1-MNC- Organization which operates in more than one country.
2-TNC –Organization that produces, markets, invest and operates across the world.
3-Parent country- Home country is the one where the headquarter of an MNC or TNC is
located.
4-Host country- Host country is the one where the subsidiary branch of an MNC /TNC is
located.
5-Host country nationals- Host country nationals are employees of an MNC/TNC’s
subsidiary/branch who are the citizens of the country where the subsidiary branch of
the MNC/TNC located.
 6-Third country nationals- Employees of an MNC/TNC or their subsidiary/branches and
are citizens of those countries other than the MNC/TNC’s home country and/or host
country.
7-Expatriate- According to International Human Resource Management, the one who is
working & residing in a foreign country during his/her tenure of foreign employment.
Expatriates are-
 Foreign employees working in domestic companies.
 Parent country nationals working in MNC’s subsidiary.
 Third country nationals working in MNC.
 Host country nationals working in the parent country MNC/TNC.
8- Repatriate- employees transferred from subsidiary to headquarter.

International Human Resource Management

IHRM practices of a multinational or transnational company employing home country
nationals, host country nationals & third country or any combination of these nationals
invariably come under the practices of IHRM.
 IHRM is defined as, performing HRM and its related activities and arranging for related &
necessary cultural & immigration facilities for prospective and current employees, by
organization operating in domestic and/or foreign countries.
 International Human Resource Management (IHRM) can be defined as a set of
activities targeting human resource management at the international level.

Dimensions of IHRM: According to P.V. Morgan: IHRM is the interplay among 3 dimensions:
ƒ
 HR Activities
 Types of employees
 Types of Countries

1)Broad activities of IHRM – procurement, allocation and utilization of

human resources cover all the six activities of domestics HRM i.e., HR
Planning, Employees Hiring, Training and Development, Remuneration,
Performance management and industrial relations.

2)The three national or country categories involved in IHRM activities are:

 The host country where subsidiary may be located.

 The home country where the company has its head quarters and

 Other countries that may be sources of labor or finance.

3) The three types of employees of an international business are – Parent Country Nationals (PCNs),
Host Country Nationals (HCNs) and Third Country Nationals (TCNs). For example, IBM which employs
Australian Citizens in its Australian operations, after sends US citizens to Asia Pacific Countries on
assignment, and may send some of its Singaporean Employees to its Japanese operations.
Purpose of IHRM:
To enable the firm /, the multinational corporations (MNCs), to be a successful globally.

Objectives of IHRM:
 Remaining competitive throughout the world

 Efficient

 Locally Responsive

 Flexible and adaptive

  Capable to transforming learning across their globally dispersed units.

Difference between domestic and IHRM

IHRM vs. HRM

There are many similarities between HRM at the national as well as international level. However, let us
have a look at the differences between them with the help of points given below −
 Domestic HRM takes place at the national level, that is, within a country and IHRM takes place at
the international level, that is, in between two or more than two countries.
 Domestic HRM is bothered about managing employees belonging to one nation and IHRM is
bothered about managing employees belonging the home country and host country as well as
third country employees.
 Domestic HRM is concerned with managing limited number of HRM activities at the national level
and IHRM is concerned with managing additional activities such as expatriate management.
 Domestic HRM is less complicated due to fewer imprints from the external environment. IHRM is
comparatively more complicated, as it is deeply affected by the external factors such as cultural
distance and institutional factors.
We can conclude that both IHRM and HRM share some grounds of similarities as well as dissimilarities,
but both have their own importance. Further, they contribute to the development of a country in a
combined manner.

DEVELOPMENTS LEADING TO IHRM PERSPECTIVE

 INTERNATIONAL HR CHALLENGES

Managing human capital is a challenging task for any manager and for the human resource department
in an organization. The Knowledge-based economy and knowledge workers always state that it’s a risky
affair when it comes to managing people. The internationalization puts additional challenges and issues
in managing employees.

1. Difficulty in creating an international human connection.

2. Employment law varies from country to country.
3. Cultural differences cause professional misunderstanding.
 The complexity is far greater and issues are many times delicate since expatriation often means
relocation of the employee’s family as well. The focal areas of priority of HR also changes with
the stage of internationalization.
 There are 3 major international HRM activities- Procure, Allocate, and Utilize. In effect these
three major activities of IHRM cover all the six activities of domestic HRM i.e. HR Planning,
Employees Hiring, Training and Development, Remuneration, Performance Management and
Industrial Relations.
1. International Staffing
 Staffing is a challenging function. Finding the right set of people has never been
easy.
 Then cost is another major consideration. Cost of finding an international
employee and hiring that person if often very high.
 It may be difficult to hire professional from other countries since the
compensation may not work out in the favor of the expat.
  Environmental factors and Political Environment may change with government
regimes and may favor or disfavor expat movement.
2. Cultural Challenge:
 Difference in national cultures of expats poses a challenge in hiring and
assimilating international staff. A lot of pre-departure training for the expats
is focused on cross cultural training.
 Cultural fitment of the expats plays a important role in the success of the
projects and international assignments.
 Multi-national companies often develop hiring strategy and training
interventions to cope up with this cultural challenge.
 Hofstede defines six cultural dimensions to qualify a national culture
(Hofstede Cultural Dimension).
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- Individual versus Collectivism (IDV) – Individualism (high IDV score) is the
extent to which people prefer to live with a strong sense of personal
identity (take care of only themselves as their immediate families), while
collectivism (low IDV score) refers to the preference of group identity.
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-Uncertainity Avoidance Index (UAI) - The degree to which the members of
a society feel comfortable with uncertainty and ambiguity.
5-Indulgence versus Restraints (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.
6-Long-term Orientation versus short-term Normative Orientation (LTO)-
Long-Term orientation is when you are focused on the present or past and
consider them more important than the future.
Cultures low on this dimension, for example, prefers to maintain time-
honored 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.
 Developments leading to IHRM Perspectives

1-Cultural Environment-

 Culture encompasses the values, behavioral norms, and patterns of behavior of country.
 Culture shock means moving to a new environment which requires many adjustments in short
period of time. This can challenge the frame of reference of the expatriate and their national
identity.
 People can psychologically disoriented because they miss or misunderstand cues which leads to
lower performance and higher rates of failures.
2- Industry Type

 Global Industry: performance/Competitiveness in one country is influenced by the firm’s

position in others (e.g. Bombardier and Apple Produce different parts for their products all
around the world, hence have a very globally integrated strategy)
 Multi-domestic Industry: Competitiveness is independent of the firm’s position in other
countries (retail, insurance, banking etc.) so IHRM is a series of multi-domestic strategies.

3-Reliance on domestic market- Countries that have large domestic markets that account for majority of
the business will have more emphasis on domestic operations.

4- Management’s attitude: When management is more open to global expansion HRM strategies
become more suited for the local market management understands that there is no best way because
they have a global mindset.

INTERNATIONAL HUMAN RESOURCE MANAGEMENT -ROLE AND DISTINGUISHING ACTIVITIES

Global human resources managers are responsible for recruitment of new employees, training,
professional development, benefits and legal compliance just like any other HR team, but they do so on
a global scale.

 RECRUITMENT AND ONBOARDING PROCESS

Attracting, hiring and retaining a skilled workforce are perhaps the most basic of the human
resource functions. There are several elements to the task including developing a job description.
Interviewing candidates, making offers and negotiating salaries and benefits. Things become more
complex in the international arena due to the differences in educational system from one country
to the next and off course differences in languages.
 ON-THE-JOB TRAINING

Even when an organization hires skilled employees, there is normally some level of On-The-Job training
that the HR department is responsible for providing. This is because every organization performs tasks in
a slightly different way. One company might use computer software differently from other or it may
have a different timekeeping method. Multiple sessions in numerous international locations may be
called for although online webinars and training tools can sometimes effectively reach anywhere on the
globe.

 CONTINUING PROFESSIONAL DEVELOPMENT

Closely related to training in HR’s function in professional development. But whereas training needs are
centered around the organization’s processes and procedures, professional development is about
providing employees with opportunities for growth and education on an individual basis. Development
often entails moving an employee between departments so that he/she gains skills in multiple areas. For
an international operation this may also mean moving employees across boundaries.

 BENEFITS AND COMPENSATION

While the management of benefits and compensation is given for human resources, the globalization of
companies in the twenty-first century has meant that HR must now adapt to new ways of providing
benefits to an organization’s employees. Balancing compensation and benefits for the organization’s
workforce is an important HR function because it requires sensitivity to the wants and needs of a diverse
group people.

 ENSURING LEGAL COMPLIANCE

Ensuring legal compliance with labor and tax law is a vital part of ensuring the organizational continued
existence. Different government should be taken under consideration because the business operates
imposes mandates on companies regarding the working hours of employees, tax allowances, required
break times, and working hours, minimum wage amounts and policies on discrimination.

Activities

1- Staffing
2- Recruitment and Selection
3- Managing Expatriates
4- Training and Developments
5- Performance Management
6- Compensation


ORGANIZATIONAL STRUCTURE AND IHRM
DEFINITION-A system that outlines how specific activities are handled to fulfill a strategic mission
is known as an organizational structure. Rules, roles, and obligations are all part of these activities.

The organizational structure also determines the flow of information between divisions within the
corporation. A centralized structure, for example, makes choices from the top-down, whereas a
decentralized structure distributes decision-making power throughout the organization.

Structure is made up of three component parts, namely- complexity (horizontal, vertical & local
differentiation) differentiation), formalization (degree to which the jobs within the organization are
standardized) and centralization (degree to which the decision making is concentrated at a single point
in organization).

Types of organizational structure

1-Formal organization-In such an enterprise there are well defined roles, positions, authority
responsibility relationship.

2- Informal organization-refers to any informal relationship amongst the persons of an organization i.e.
they are based on their social and personal relations.

3-Line organization structure- also known as military organization. The line of authority flows from top
most executives to the lowest subordinate. In this structure one employee is accountable to only one
superior i.e. there is a unity of a command .The authority relationships are clear and there is strict
discipline.
4-Functional organizational structure-The department are grouped according to functions like
employment, training, salary, welfare, and services etc. A specialist head s each department and has
specialized men under him. The operating executives are free from the necessity of performing work
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outside their special fields and are offered expert assistance and advice as needed in the performance of
their jobs and tasks.

5-Line and Staff Organization Structure-achieve the benefit of both line as well as the functional
organization. The organizational structure is basically that of line organization, but staff officers who are
functional experts are engaged to advise the line officers to perform their duties. Under it staff positions
are attached to line executives. Personal department provides advice and assistance on personal
matters to all departments without discouraging unity of command.

Line Authority

 It gives the managers the right to issue orders to other managers or employees.
 It creates a superior subordinate relationship.

Staff Authority

 It gives the manager the right to advise other managers or employees.

 It creates advisory relationship.

6- Divisional Organization – The organization is divided into divisions which could be based on the
product, Markets or geographic area. Each division has its own set of functions like finance, marketing
etc., which are like small micro organizations within one large organization.

7-Matrix organizational structure – A company structure where team report to multiple leaders.
Individual work across teams and projects as well as within their own department or function .
INTERNATIONAL HUMAN RESOURCE PLANNING
The basic steps involved in international HR activities are:
 HR Planning
 Recruitment and Selection
 Training and Development
 Performance management
 Remuneration
 Expatriation/Repatriation
 Employee Relations

Human Resource Planning

According to ROBBINS- “The process by which an organization ensure that it has the
right number and right kind of people at the places, at the right time, capable of
effectively and efficiently completing those task that will help the organization
achieve its overall objectives”
 It is the process of acquiring and utilizing human resource in an organization.
 It includes planning for staff retention, planning for candidate search, training and skills analysis
and much more.
 The main objective is to ensure that an organization has the right number of employees in the
right place at the right time.
Objective of Human Resource Planning
 To determine the number of employees to be employed (assessing manpower
requirement)
 To retain highly skilled staff (evaluation of current workforce)
 To manage an effective downsizing program efficient change management.
 Analyze organizational plans: look at the future plans of the organization, i.e. what
projects it wants to pursue in the future, any extension plans and so on.
 Forecast demand for human resources: Based on the previous step, forecast the
required, look at the sources of their supply and to what extent they are available.
 Estimating manpower gaps: It is important to identify the difference between required
human resources and existing human resources in the organization.
 Action plan: Once the manpower gaps are estimated then the actions to be taken for
bridging those gaps are planned.
 Monitoring and control are required throughout the process.
Quantitative and Qualitative Dimensions of HR Planning
Quantitative aspect of human resource planning involves demand forecasting and supply
forecasting.
1-Demand forecasting: means estimating the future requirement of the employees. It can be done
on the basis of estimating sales, number of proposals company get or on the basis of estimating the
number of orders the company has.

2-Supply Forecasting-Supply forecasting is another quantitative aspect of human resource

planning. It is concerned with estimating the supply of manpower by analyzing the current
resources and future availability .For this purpose the external supply and internal supply
of manpower must be considered by human resource planner.

 After determining the number of personnel for each department in the

organization it is required to determine the nature of job, which will further help in
the minimum acceptable qualities required by the personnel.
 Determining the nature of job along with the minimum acceptable qualities of the
personnel is called job analysis. Job analysis is divided into two parts:
A-Job description: Contains the information relating to the job (tasks, duties,
function and responsibilities of a position.)
B-Job specification: contains the information relating to physical, educational, and
other qualification required by the individual to perform the job.
When these activities are performed by international Firm, it is called International
Human Resource Planning.

Factors to be considered in planning

Supply-The talent can be sourced from the universities or educational institutes.
Also, competitors are another source where employees can be hired from.
Cost-Cost of labor, cost of replacing critical talent is too high. It also disrupts the
working projects. The new talent also may take time to adjust to the changed
environment and take time to add value and to pay for itself.
Mobility: Talent may be available but they may not be willing to leave their home
country or their native place.
Attrition-attrition rates tend to high as talent is lured by competitors at attractive
packages. Companies should try to retain their key talent and also is attracting new
talent as the cost of losing an old employee and replacing is too high.
Conclusion
MNCs need different kinds of human resources for various activities and purpose
depending upon the situation. MNCs, after analyzing the future organizational
activities and structure for different kinds of jobs, plan for different kinds of
human resources. However MNCs can consider the technique of HRM planning
that are used by domestic HR managers, wherever and whenever that are
appropriate.