International Human Resource

Management

Ligo Koshy, Assistant Professor, MACFAST

 Importance of International Human
Resource Management
• Globalization is gaining momentum
• Markets are no longer protected from foreign
competition
• A large proportion of workforce is located in other
countries away from their homes and home
countries
• Quality human resources are a must for
implementing global competitive strategies.

Ligo Koshy, Assistant Professor, MACFAST

 Definition
• Morgan defines international HRM as the interplay
among three dimensions-human resource activities,
type of employees, and countries of operation.

Ligo Koshy, Assistant Professor, MACFAST

A Model of IHRM

Ligo Koshy, Assistant Professor, MACFAST 4

 Type of countries involved
• The three national or country categories
involved in international HRM activities:
– the Host country where a subsidiary may be
located
– The Home country where the firm is
headquartered
– “Other” countries that may be the source of labor
or finance.

Ligo Koshy, Assistant Professor, MACFAST

 Type of Employees
• The three types of employees of an international
firm:
• Host-country nationals (HCNs),
• Parent-country nationals (PCNs)
• Third country nationals (TCNs).
• Eg: IBM employs Australian citizens (HCNs) in its
Australian operations, often sends U.S. citizens
(PCNs) to Asia-Pacific countries on assignment, and
may send some of its Singaporean employees on all
assignment to its Japanese operations (as TCNs).

Ligo Koshy, Assistant Professor, MACFAST

 International Assignments Creates Expatriates and Inpatriate

• An expatriate (expact) is an employee who is working and

temporarily residing in a foreign country.
• Inpatriate referrers to the transfer of subsidiary staff in to
the headquarters (Parent country
Ligo Koshy, Assistant Operations)
Professor, MACFAST
 HR Activities
• The three broad human resource activities:
procurement, allocation, and utilization.
• Human Resource Planning
• Staffing(Recruitment & Selection)
• Training and Development
• Performance Management
• Compensation and Benefits
• Labour Relations ( Industrial Relations)

Ligo Koshy, Assistant Professor, MACFAST

 Basic Steps in International HRM
HRP

Recruitment & Selection

Organisational Effectiveness
Training and Development

Performance Management

Remuneration

Repatriation

Employee Relations

Multicultural Management Ligo Koshy, Assistant Professor, MACFAST

Differences between HRM &
IHRM

Ligo Koshy, Assistant Professor, MACFAST

 Difference between Domestic HRM
and IHRM
• Six factors that differentiate international
from domestic HRM. These factors are as
follows (Dowling).
1. More HR activities
2. The need for a broader perspective
3. More involvement in employees’ personal lives
4. Changes in emphasis as the workforce mix of
expatriates and locals varies
5. Risk exposure
6. More external influences.

Ligo Koshy, Assistant Professor, MACFAST

 More HR Activities
• International environment requires the HR
department to undertake more HR activities than
those in domestic HR.
• They are :
• international taxation
• international relocation and orientation
• administrative services for expatriates
• host government relations
• language translation services
Ligo Koshy, Assistant Professor, MACFAST
 Each function of HR has a new
dimensions in IHRM
• Human Resource planning
• Difficulty in implementing HR procedure in host
countries
• Providing developmental opportunities for
international managers

Ligo Koshy, Assistant Professor, MACFAST

 Each function of HR has a new
dimensions in IHRM
• Employee hiring
• Ability to mix with the organisation’s culture
• Ethnocentric, Polycentric and geocentric approach to
staffing
• Selection of expatriates
• Coping with expatriate failure
• Managing repatriation process

Ligo Koshy, Assistant Professor, MACFAST

 Each function of HR has a new
dimensions in IHRM
• Training and development
• Emphasis on Cultural training
• Language Training
• Training in manners and mannerisms

Ligo Koshy, Assistant Professor, MACFAST

 Each function of HR has a new
dimensions in IHRM
• Compensation
• Devising an appropriate strategy to compensate
expatriates
• Minimizing discrepancies in pay between parent, host
ad third county nationals
• Issues related to re-entry of expatriates in to the home
country

Ligo Koshy, Assistant Professor, MACFAST

 Each function of HR has a new
dimensions in IHRM
• Performance management
• Constraints while operating in host countries need to
be considered
• Physical distance, time differences add to complexity
• identification of raters to evaluate subsidiary
performance

Ligo Koshy, Assistant Professor, MACFAST

 Each function of HR has a new
dimensions in IHRM
• Industrial relations
• Who should handle industrial relations problem in a
subsidiary?
• What should be the attitude of the parent company
towards unions in a subsidiary?
• What should be the union tactics in subsidiaries?

Ligo Koshy, Assistant Professor, MACFAST

 Difference between Domestic HRM
and IHRM
• Need for Broader Perspective
• Need to design and administer programmes focuses on
more than one country
• Eg: co-ordinate pay systems in different countries while
taking in to consideration of different currencies and
the exchange rates
• Handling fringe benefits (concept of family in employee
health insurance schemes)
• Concept of promotion, overtime etc.

Ligo Koshy, Assistant Professor, MACFAST

 Difference between Domestic HRM
and IHRM
• More involvement in Employee’s Personal Lives
• Greater degree of involvement in the personal lives of
PCN’s and TCN’s
• MNE’s maintain an “International Human Resource
Service” section to coordinate the administration of PCN’s
and TCN’s ( banking, Housing arrangements, health care,
all aspects of remuneration, child care, home rental while
on assignments, co-ordinating the home visits, final
repatriation)

Ligo Koshy, Assistant Professor, MACFAST

 Difference between Domestic HRM
and IHRM
• Changes on Emphasis
• Emphasis on various HR activities will change as the
International business matures.
• Eg: Need for the PCN’s and TCN’s declines and more
HCN’s in the workforce.
• Resources previously allocated for the expatriate
compensation and benefits to activities such as training
and development

Ligo Koshy, Assistant Professor, MACFAST

 Difference between Domestic HRM
and IHRM
• Risk Exposure
• Risk Exposure is high in IHRM
• (Kidnapping , Terrorism, Racism)
• Need for Emergency evacuation procedures
• Seizure of MNC’s Assets in a foreign Country

Ligo Koshy, Assistant Professor, MACFAST

The organisational Context of
IHRM

Ligo Koshy, Assistant Professor, MACFAST

Standardization & localization of
HRM practices

Ligo Koshy, Assistant Professor, MACFAST

 Why globally standardize HRM?
Consistency
Transparency
Alignment

of a geographically fragmented workforce

around common Principles
Objectives
 Why locally responsive HRM?
To respect Cultural values
local Traditions
Legislation
Government policies
Education systems

regarding HRM and work practices

 Figure 3.2
Balancing the standardization and localization of HRM in MNEs

Localization
According to the
host country
Global context
Standardisation
According to the
MNE’s Global
Requirements

Balancing global
standardisation
and localization
of HRM
 The Path to Global Status
Stages of Internationalisation
• The evolution from a domestic to a truly global
organisation may involve many and diverse steps
Network of
subsidiaries

Foreign
Production

Sales
Subsidiary

Exporting Licencing Subcontracting

Ligo Koshy, Assistant Professor, MACFAST

 Export Department Structure
• Typically the initial stage .
• Exporting tend to be handled by an intermediary( foreign
agent/ distributer) as local market knowledge is critical.
• Further growth in the exporting lead to the establishment of
an export department at the same level as the domestic sales
department.
• Exporting is controlled by the domestic home office.

CEO

Operations Finance Marketing Human Resource

Domestic Marketing Exports

Ligo Koshy, Assistant Professor, MACFAST

 Sales Subsidiary Structure

Human
Finance Logistics Production Marketing Exports
Resources

Issues of Roles
Direct Sales and
Exports Subsidiary responsibilities

• As the firm develops expertise in foreign markets, agents and

distributers are replaced by the direct sales and establishment
of sales subsidiaries/ branch offices in the foreign country
• Export manager is given the same authority as other functional
managers
• Exporting is still controlled
Ligo Koshy, Assistant Professor, MACFAST
at the corporate headquarters.
 International Division
CEO

Operations Finance Marketing Human

Resource

International
Domestic Division A Domestic Division B Division

Subsidiary Country X Subsidiary Country Y Subsidiary Country Z

O F M HR O F M HR O F M HR

Ligo Koshy, Assistant Professor, MACFAST

 Global Functional Division structure
CEO

Operations Finance Marketing Human

Resource

America Europe Asia America Europe Asia

America Europe Asia America Europe Asia

• Greater emphasis on functional expertise

• High level of centralized control
• Higher international orientation of all functional managers
• Difficulty in cross-functional coordination
Ligo Koshy, Assistant Professor, MACFAST
 Global Product Structure
CEO

Operations Finance Corporate Product Division Marketing Human Resources

Product A (Chemicals) Product B (Pharma) Product C (Food)

America Europe Asia Pacific

China
India
Australia
Japan

Operations Human
Finance Marketing
Resource

• The corporate product division is given worldwide

responsibility for the product growth.
• Effective in managing diversified product lines.
• Extremely effective in carrying out product modifications so
as to meet rapidly changing customer
Ligo Koshy, Assistant Professor, MACFAST needs
 Global Geographic/Area Structure
CEO

Operations Finance Marketing Human Resources

America Asia Pacific Europe

United kingdom
Germany
France
Switzerland

Operations Finance Marketing Human Resources

• Firm’s global operations are organized on the basis of

geographic regions
• Heads of various geographical subsidiaries can focus on
the local market requirements and respond quickly.
• The corporate headquarter is responsible for
transferring excess resources from one country to
Ligo Koshy, Assistant Professor, MACFAST
another, as and when required.
 Global Matrix Structure
CEO

Operations Finance Marketing Human Resources

Corporate Head ( Global Area) Corporate Head ( Global Products)

Product A (Chemicals) Product B (Pharma) Product C (food)

America
Europe
Asia Pacific

• The global matrix structure might consist of product divisions

intersecting with various geographical areas or functional
divisions
• Facilitates greater interaction and flow of information
throughout the organization.
• Managers need to report to two or multiple bosses ( unity of
Ligo Koshy, Assistant Professor, MACFAST
command is violated)
 Internationally, matrix is difficult

• Dual reporting
• Many communication channels
• Overlapping responsibilities
• Distance, language, time, & culture barriers
 Mixed Structure
• Manage the difficulties of the matrix form

• Organisations pursued area structures added

worldwide product managers and product-
divisionalized firms reintroduced international
division to co-ordinate across product lines.

Ligo Koshy, Assistant Professor, MACFAST

 The Heterarchy
• Competitive advantage does not reside in any one
country
• A multinational have different kinds of centers apart
from headquarters.
• Each subsidiary Centre may be simultaneously a
Centre and a global coordinator of discrete activities,
thus performing a strategic role not just for itself, but
for MNC as a whole. Manufacturing

HQ R&D

Ligo Koshy, Assistant Professor, MACFAST

 The Transnational Network structure
R&D
Marketing
UK

Europe Germany Manufacturing

Manufacturing Brazil Corporate Switzerland

Fin, HR, IT

R&D US America
Global Head
quarters
Marketing

Asia
Manufacturing Mexico
R&D
Manufacturing
India Japan R&D

Marketing Singapore China Manufacturing

Resources & responsibilities are interdependent across

national boundaries.
Ligo Koshy, Assistant Professor, MACFAST
 5 dimensions of networked MNEs
1. Disperse sub-units
2. Inter-dependent relationships
3. Specialized operations
4. Decision-making authority is delegated to
appropriate units & levels
5. Fewer organizational levels

Ligo Koshy, Assistant Professor, MACFAST

 Evolution of Global Organizational Structures

Global Transnational
Product Network
Structure Structure

Global Global
product Matrix
strategies Structure

Export Department or Global

international Division Geographic
Structure Structure

Location based strategies

Ligo Koshy, Assistant Professor, MACFAST

 Licensing
• In this mode of entry, the domestic manufacturer leases
the right to use its intellectual property,( i.e. , technology,
work methods, patents, copyrights, brand name,
trademark, trade secrets, designs etc.) to a manufacturer
in foreign country for a fee.
• Manufacturer in the domestic country is called licensor
and manufacturer in the foreign country is called
licensee.
• The agreement does not transfer ownership of the
intellectual property.
• Eg: Walt Disney, Pepsi-Cola, Coca-Cola

Ligo Koshy, Assistant Professor, MACFAST

 The process of Licencing
Licensor Licensor

Leases the right to use the

Receives Royalty money
intellectual Property

Uses the intellectual

Pays royalty to the licensor
property to produce
for using intellectual
products for sale in his
Property
country
Licensee Ligo Koshy, Assistant Professor, MACFAST Licensee
 Subcontracting
• Subcontracting refers to the process of
entering a contractual agreement with an
outside person or company to perform a
certain amount of work.
• The out-side person or company in this
arrangement is known as a subcontractor

Ligo Koshy, Assistant Professor, MACFAST