Kateb University

Chapter One
Introduction to International Human Resource Management

Sayed Ajan Ahmadzai, PhD (Management).

 Objectives

• Understand various concepts often referred in

international human resource management;
• Know the meaning of expatriate, understand the
confusions over the term and analyze the clarity over
the concept;
• Analyze the issues causing the hiccups in defining the
term international human resource management;
• Defining and analyzing the term international human
resource management;
• Discuss the differences between domestic human
resource management from international human
resource management.

Sayed Ajan Ahmadzai, PhD (Management).

 Basic Concepts
• Multinational Corporation (MNC): MNC is an organization which
operates in more than one country.
• Transnational Corporation (TNC): TNC is an organization, that
produces, markets, invests and operates across the world.
• Home Country/Parent Country: Home country/parent country is
the one where the headquarters of an MNC or TNC is located.
• Host Country: Host the country is the one where the
subsidiary/branch of an MNC/TNC is located.
• Parent Country Nationals/ Home Country(PCNs): Parent country
nationals/ home country nationals are employees of an
MNC/TNC who are the citizens of home country/parent country
of that MNC/TNC.
• Host Country Nationals (HCNs): 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 is located.

Sayed Ajan Ahmadzai, PhD (Management).

 Basic Concepts-Cont’d

• Third Country Nationals (TCNs): Third country nationals are

employees of an MNC/TNC or their subsidiaries/branches, and are
citizens of those countries other than the MNC/TNC's home
country and/ or host country. For example, Mr. Ali – an Afghan – is
working in Hindustan Lever Limited (a subsidiary of Uni Lever,
USA) in Mumbai, India. Mr. Ali is called third country national.

Sayed Ajan Ahmadzai, PhD (Management).

 Parent Country National
Advantages
• Familiarity with the goals, objectives, policies, systems, procedures
and practices of the headquarters.
• Effective liaison and communication with home-office personnel.
• Easier exercise of control over the subsidiary's operational.
Disadvantages
• Difficulties in adapting to the foreign language, culture and
environmental issues like socio-economic, political, and legal
environment.
• Excessive cost of maintaining expatriate managers and their
families abroad.
• The host countries' nationals lose jobs.
• Family adjustment problems and thereby failure of PCNs..

Sayed Ajan Ahmadzai, PhD (Management).

 Host Country National

Advantages
• Familiarity with the culture and environmental factors like socio-
economic, political and legal environment and with business practices in
the host country.
• Lower cost of staff.
• Provides opportunities for human resource development of HCNs
leading to increase in their commitment and motivation.
• Responds effectively to the host country's demands for localization of
the subsidiary's operations.
Disadvantages
• Difficulties in exercising effective control over the subsidiary's
operations.
• Communication difficulties in dealing with headquarters.
• Lack of opportunities for gaining international and cross-cultural
experience.

Sayed Ajan Ahmadzai, PhD (Management).

 Third Country National
Advantages
• Compromise between PCNs and HCNs.
• TCN are usually career international business managers.
• TCN are less expensive to maintain than PCN.
• TCN may be better informed about the host environment than
PCN.
Disadvantages
• Host countries' sensitivity with respect to nationals of specific
countries.
• Local nationals are impeded in their efforts to upgrade their own
ranks and assume responsible positions in the multinational
subsidiaries.

Sayed Ajan Ahmadzai, PhD (Management).

Meaning of International Human Resource Management

• A domestic company operating within the national boundaries

employs some foreign employees/expatriates in addition to
nationals of the country. Can we term this practice by a domestic
company as IHRM?
• A multinational company having a branch office in a host country
employs only the nationals of the host country. Can we call the
practice of managing host country national employees by an
MNC in its branch office as IHRM?
• A multinational company employs exclusively its home country
nationals in its home country office/headquarters. Can we term
this practice as IHRM?

Sayed Ajan Ahmadzai, PhD (Management).

 International Human Resource Management

• IHRM is defined as, performing HRM and its related activities and
arranging for related and necessary cultural and immigration
facilities for prospective and current employees, by organizations
operating in domestic and/or foreign countries (Subba Rao
Pulapa, 2007).

• P. Morgan defines IHRM as the interplay among human resource

activities (viz., procure, allocate and utilize) types of employees
(viz., host-country nationals, parent country nationals and third
country nationals) and countries (viz., host country, home
country and others).

Sayed Ajan Ahmadzai, PhD (Management).

International Human Resource Management-Cont’d

• International Human Resource Management is the procurement,

allocation, utilization, and motivation of human resources in
international business.

Sayed Ajan Ahmadzai, PhD (Management).

International Human Resource Management-Cont’d

• IHRM is defined as interaction between the three group of

factors-Type of employees, environment of countries, and basic
HR processes.

Sayed Ajan Ahmadzai, PhD (Management).

International Human Resource Management-Cont’d
Types of Human International HR Activities
Resources
 Domestic human  Procuring
resources/Nation  Developing
als of the Host  Compensating
country  Utilizing
 Parent country  Immigration/Migration
Nationals  Socialization Services
 Third country  Security
Nationals  Repatriation/Deportation
 Other types of
foreign employees  Cross-cultural management

Sayed Ajan Ahmadzai, PhD (Management).

Differences between Domestic Business and International Business
S.No. Domestic Business
1. Approach: Domestic business’s
approach is ethnocentric. It does
mean that domestic companies
formulate strategies, product
design etc. towards the national
markets, customers and
competitors.
2. Geographic Scope: Domestic
business’s geographic scope is
within the national boundaries of
the domestic country.
3. Operating Style: Domestic
business’s operating style
including production , marketing,
investment, R&D, etc.is limited to
the domestic country.
Sayed Ajan Ahmadzai, PhD (Management).
International Business
International business’s approach can be
polycentric or regiocentric or geocentric.
International business under polycentric
approach enters foreign markets by
establishing foreign subsidiaries. Under
the regiocentric, they export the product to
the neighbouring countries of the host
country. Under the geocentric approach,
they treat the entire world as a single
market for production, marketing,
investment and drawing various inputs.
Geographic scope of the international
business varies from the national
boundaries of a minimum of two countries
up to a maximum of the entire globe.
Operating style of the international
business can be spread to the entire
globe.
Differences between Domestic Business and International Business-Cont’d

4. Environment: Domestic business International business analyses and

mostly analyses and scans the
domestic environment.
5. Quotas: The quotas imposed by
various countries on their exports
and imports not directly and
significantly influence domestic
business.
6. Tariffs: The tariff rates of various
countries do not directly and
significantly influence the
scans the relevant international
environment.
The international business has to operate
within the quotas imposed by various
countries on their exports and imports.
The tariff rates of various countries directly
and significantly influence the international
business.

Sayed Ajan Ahmadzai, PhD (Management).

Differences between Domestic Business and International Business-Cont’d

7. Foreign Exchange Rates: Foreign Foreign exchange rates and their

exchange rates and their
fluctuations do not directly and
significantly affect the domestic
business.
8. Culture: Mostly domestic culture of
the country affects the business
operations including product
design.
9. Export-Import Procedures:
Domestic business is not normally
influenced by export-import
procedures of the country.
fluctuations directly and significantly affect
the international business.
Mostly culture of various countries affects
the business operations including
product design of international business.
International business is significantly
influenced by export-import procedures of
various countries. They need to follow
those procedures.

Sayed Ajan Ahmadzai, PhD (Management).

Differences between Domestic Business and International Business-Cont’d

10. Human Resources: Domestic International business normally employs

business normally employs the
people from the same country.
Therefore, the task of human
resource management is not
much complicated.
the people from various countries.
Therefore, the task of human resource
management is much complicated.

11. Markets and Customers: International business should understand

Domestic companies meet the markets and customers of various
needs of the domestic markets countries.
and customers. As such, it would
be appropriate for them to
understand the domestic markets
and customers.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM

International HRM differs from domestic HRM in six major dimensions.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM-Cont’d

I. Wider Nationalities: IHRM deals with the employees

drawn from a number of nations in contrast to domestic
HRM, where employees are drawn from one nation. People
from different nations come with a variety of cultures,
values, ethnical interpretations, religion beliefs and the like.
Cultures and behaviour of people do also vary based on
geographical regions.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM-Cont’d

II. Broader Relations and Complexities: Organizations seek the

information on broader aspects of employees, and their family
members while recruiting and selecting employees from foreign
countries. These aspects include: age, health, educational
qualifications, driving skills criminal record of employee and his/her
family members. Organizations arrange for work permit for employee,
visas and resident permits or different kinds of visas for employee
and family members, air tickets and all other logistics etc. In addition,
organization arrange for socialization of employee and family
members with the local community, facilities in the country/city like
health, shopping, hotels, housing, entertainment, educational and
religious places/places of workshop etc. In addition, other employees
both nationals and foreigners do also arrange socialization activities
at the personal and family levels.
Sayed Ajan Ahmadzai, PhD (Management).
 Differences between IHRM and Domestic HRM-Cont’d

III. Influence of International Environment: International

environment has become complex, highly competitive, dynamic, and
interdependent. The emergence of World Trade Organization,
increased phase of globalization of all facets of business, widening
scope of regional integrations and strides in information technology
transformed the domestic environment of most of the countries into
international environment. Increased economic integration creates
new challenges to IHRM as happened in European Union, when it
expanded and its membership increased to 27 in 2007. It caused free
flow of human resources among the 27 countries and therefore
workers from the less developed countries of European Union
migrate to developed countries of the union which resulted in decline
in wage rate and increased unemployment in developed countries of
the union like Germany and Italy.
Sayed Ajan Ahmadzai, PhD (Management).
 Differences between IHRM and Domestic HRM-Cont’d

IV. Enduring Complexities of IHRM Activities: IHRM deals with the

expatriates and nationals. Expatriates in case of MNCs comprise of
home country nationals, host country nationals and third country
nationals. Expatriates in case of a purely domestic company include
foreigners. Thus, IHRM deals with expatriates and nationals whereas
domestic HRM deals with exclusively nationals.

A number of critical complexities arise when an organization employs

both expatriates and nationals. These complexities are to some extent
due to the practice of different HRM policies and practices for
nationals and expatriates.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM

V. Variety of Functions: International human resource managers perform

certain additional functions compared to domestic human resource managers.
These functions include:
• Additional Information: Procuring additional information about the culture,
family members, and current employment details of the prospective
employees at the recruitment stage itself.
• Additional Techniques of Recruitment: Using additional techniques of
recruitment to attract and inspire the prospective employees to apply like
describing the culture of the country, exchange value of the currency,
exchange stability, percentage of repatriation of earnings to home country,
medical facilities, educational facilities to children, entertainment facilities,
physical security etc.
• Checking the Record of Terrorist and Criminal Activities: Checking the
record of terrorist and criminal activities of the short listed candidates with
the help of the foreign governments of those countries where the short
listed candidates either born or lived for substantial period.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM-Cont’d

• On-Line Selection: Arranging for on-line selection techniques

and process.
• Immigration Information: Providing information to the
candidates for applying for work permit and other immigration
formalities. This includes undergoing medical tests including
HIV/AIDS Tests and submitting the reports for obtaining visa
and work permit. However, some of the medical tests required
by the visa/work permit regulations of the host country are
controversial for the employee as it involves the question of
his/her personal life as well as privacy.
• Fulfilling Immigration Formalities: Fulfilling the formalities
with the Immigration Department of the country where the
company is located for grant of permission to issue visa and
work permits.
Sayed Ajan Ahmadzai, PhD (Management).
 Differences between IHRM and Domestic HRM-Cont’d

• Air Tickets: Arrange for the air tickets, if necessary by being in

liaison with the selected candidates.
• Arranging for Receiving the Candidates: Arranging for receiving the
candidates and their families on arrival, and facilities for immediate
stay and housing.
• Introduction: Introducing the employees and their family members
to the facilities available in the organization as well as in the city
like shopping, medical, educational, recreation, entertainment,
social and religious.
• Conducting Language Classes: Organizations in some countries,
particularly, non-English speaking countries conduct language
classes for employees and their family members.

Sayed Ajan Ahmadzai, PhD (Management).

 Differences between IHRM and Domestic HRM-Cont’d

• Designing Attractive Pay Package within the Tax Laws of the Country:
Organizations have to follow the taxation rules of the host government with
regard to individual income tax for expatriates also unless otherwise special
mentions are made. Salary levels of organizations may not be attractive for the
foreign employees due to high tax rates in some countries, at the same time
they are costly for the organizations. Therefore, the organizations design the
salary and benefits structure within the tax laws in order to make it attractive to
the foreign employees and relatively less cost to the organizations.
• Full Details of Pay Package: Organizations provide the details of salary, viz., basic
salary, allowances, tax and other deductions including housing, payment of
children school fee, payment period like weekly, fortnightly or monthly, delivery
mode like cash or through bank, currency mode like fully/partly host country's
currency, and employee's home country currency, or in hard and convertible
currencies. Employees are anxious to known full details of the salary, savings,
tax, benefits, and repatriation back to the home country as the salary is one of
the major considerations in accepting/rejecting international employment
offers.
Sayed Ajan Ahmadzai, PhD (Management).
 Differences between IHRM and Domestic HRM-Cont’d

• Special Training: Organizations provide special training to the

expatriates in language, work culture apart from job related
activities that are common to nationals also.

• Close Relations with the Immigration Officials: HR of MNCs or

domestic companies employing foreign nationals develop close
and personal relationships within the officials of the Immigration
departments of the host country in order to obtain visa
permissions and work permits without any hiccups caused due to
bureaucratic rules and procedures. Some companies which feel
maintaining close relations with immigration officials through gifts
and dinner is contrary to the company's values, engage the
services of the consultants.

Sayed Ajan Ahmadzai, PhD (Management).

 International Business Strategy

International business firms can use four basic strategies, viz.,

international strategy, multidomestic strategy, global strategy and
transnational strategy.
I. International strategy: International business firms adapt this
strategy in order to transfer the valuable skills and products
developed in the home country to the foreign markets where
such skills and products are not available. This strategy produces
results when (i) the company has core competencies that the
foreign competitors do not possess them, (ii) the firm faces weak
pressure for local responsiveness and cost reductions. For
example, Trukai Rice and steamships (both are Australian
companies) transfer the skills and products from Australia to
Papua New Guinea. Mc Donald, Southern Cross University also
adapt international strategy.
Sayed Ajan Ahmadzai, PhD (Management).
 International Business Strategy-Cont’d
II. Multidomestic strategy: International business firms adapting this
strategy customize products and marketing strategies to the host
country requirements and environment. The international business
firms establish their production, marketing, finance and R & D
facilities in various host countries. For example, Unilever established
Hindustan Lever Limited in India. Similar examples include Nestle,
Proter and Gamble and Colgate Pamolive.

III. Global strategy: International business firms adapting this strategy

concentrate on profit earning though cost minimization. Therefore,
these firms produce standard products, by locating the manufacturing
and other facilities in certain locations where the cost of
production/operations is the lowest. They select other cost reduction
strategies in order to achieve low cost leadership in the industry. The
firms like Intel and Texas Instruments adapt this strategy.
Sayed Ajan Ahmadzai, PhD (Management).
 International Business Strategy-Cont’d

IV. Transnational strategy: Firms can achieve this strategy by

exploiting experience-based economies and location based
economies. Firms should transfer experience-based core
competencies and also customize their operations/product to the
local requirements. They also emphasize that the transfer of
experience based economies and skills should flow not only home
firm to foreign subsidiary, but also from foreign subsidiary to home
company and from one foreign subsidiary to another foreign
subsidiary. They referred this learning process as ‘global learning’. This
process of simultaneous value creation is called ‘transnational
strategy’. The firms adapting this strategy simultaneously reduce cost
and increase value creation and addition.

Sayed Ajan Ahmadzai, PhD (Management).

THANK YOU!

Sayed Ajan Ahmadzai, PhD (Management).