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MBA 09 HR 05 INTERNATIONAL HUMAN RESOURCE MANAGEMENT UNIT-1 INTRODUCTION TO IHRM 1. Meaning of IHRM, Difference between domestic and International HRM 2. Issues and barriers to effective global HRM 3. Role of HR in International firms HUMAN RESOURCE MANAGEMENT: Human Resource Management (HRM) involves all management decisions and practices that directly affect the people who work for the organization. INTERNATIONAL HUMAN RESOURCE MANAGEMENT: INTERNATIONAL HUMAN RESOURCE MANAGEMENT (IHRM) is a process of procuring, allocating, and effectively utilizing human resources in a multinational corporation, while balancing the integration and differentiation of Human Resource activities in foreign locations. HRM Human Resource Management (HRM) involves all management decisions and practices that directly affect the people who work for the organization. Human Resources the people who work for the organization What is IHRM? International HRM (IHRM) is the process of: procuring, allocating, and effectively utilizing human resources in a multinational corporation, while balancing the integration and differentiation of HR activities in foreign locations OBJECTIVES of IHRM To reduce the risk of international human resource To avoid cultural risks To aviod regional disparities To manage diversifies human capital HR Activities Procurement Allocation Utilization of human resources National/ Country categories where firms expand and operate Host country Parent country Third country

Categories of Employees in MNE Host-country nationals (HCNs) 1. Employees born and raised in a host country. 2. Host country: a country in which the MNE seeks to locate or has already located a facility. Third-country nationals (TCNs) 1. Employees born in a country other than a parent or host country.

An employee who is working and temporarily residing in a foreign country Some firms prefer to use the term international assignees Expatriates are PCNs from the parent country operations, TCNs transferred to either HQ or another subsidiary, and HCNs transferred into the parent country Global flow of HR: more complexity in activities and more involvement in employees' lives Introduction to the International Human Resource Management: Given the globalization of today's business activities, one may wonder what is the meaning of international human resource management (IHRM)--what is "international" about HRM? With globalization, isn't all HRM, by definition, international? For over 30 years the question has been asked: To what extent and in what ways are MNCs and their managers ecoming truly "international"? In his classic work, Perlmutter (1969) assessed the degree to which MNCs could be considered to be global or geocentric by examining their HR policies and practices along with other aspects of the organization's functions and activities. In thnocentric companies, HR policies are designed at head office and exported/transplanted worldwide. Expatriates and HR managers are likely to be parent country nationals. In geocentric or global companies, strategic decisions, including those pertaining to HR, are supposed to be made regardless of geographic boundaries. In other words, in a geocentric organization, HR policies should be developed with input from around the world. In today's discussion about globalization, the issue remains alive and well: To what extent is IHRM practice predominantly ethnocentric or "truly global"? For over 20 years, much of the literature on IHRM has focused on the issue of expatriation. Expatriates are sent out around the world like corporate missionaries to provide technical and managerial expertise, to control operations, and to further develop these managers as well as their companies (Edstrom & Galbraith, 1977; Doz & Prahalad, 1984). Problems of expatriation adjustment have also been the key concern (Torbiorn, 1982; Tung, 1981, 1988; Mendenhall & Oddou, 1985; Black et al., 1992, Schneider & Asakawa, 1995). Different success rates in various regions of the world led Tung (1982) to consider differences in selection and training practices. Now issues of repatriation have taken the foreground. Indeed, the traditional career paths pursued by expatriates have evolved over time. In its place, the concept of boundaryless careers has emerged (Tung, 1998). Furthermore, with growing ethnic diversity in countries such as the U.S., Canada and U.K.,

Defining International HRM from the perspective of a multinational firm Before offering a definition of international HRM, we should first define the general field of HRM. Typically, HRM refers to those activities undertaken by an organization to effectively utilize its human resources. These activities would include at least the following: 1. Human resource planning 2. Staffing 3. Performance management 4. Training and development 5. Compensation and Benefits 6. Labor relations We can now consider the question of which activities change when HRM goes international. A paper by Morgan (1986) on the development of international HRM is helpful in considering this question. He presents a model of international HRM (shown in Figure 1) that consists of three dimensions: 1. The three broad human resource activities of procurement, allocation, and utilisation.(These three broad activities can be easily expanded into the six HR activities listed above). 2. The three national or country categories involved in international HRM activities: (1) the host-country where a subsidiary may be located, (2) the home-country where the firm is headquartered, and (3) "other" countries that may be the source of labor or finance. 3. The three types of employees of an international firm: (1) host-country nationals (HCNs), (2) parent-country nationals (PCNs), and (3) third-country nationals (TCNs).3 Thus, for example, 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 an assignment to its Japanese operations (as TCNs). Definition of IHRM Schuler, Budhwar & Florkowskis world-wide management of human resources with the purpose of enabling the multinational enterprise to perform successfully. Dowling and Welchs (2004) highlight the interplay of human resource activities, types of employees, and countries of operation, (2004: 5). Clark et al (2000: 8) adopted a broad typology of three areas; "work relations", "employment relations" and "industrial relations", and their activities, attributed to HRM by Gospel (1992). Scullions (1995: 352) succinct yet holistic definition: the human resource management issues and problems arising from the internationalization of business, and the human resource management strategies,

policies and practices which firms pursue in response to the internationalization process. It is not easy to provide a precise definition of international human resource management (IHRM). What an HR manager does in a multinational corporation varies from firm to firm. It also depends on whether the manager is located in a global corporations headquarters or on site in a foreign subsidiary. Broadly defined, international human resource management (IHRM) is the process of procuring, allocating, and effectively utilising human resources in a multinational corporation. If the MNC is simply exporting its products, with only a few small offices in foreign locations, then the task of the international HR manager is relatively simple. However, in global firms human resource managers must achieve two somewhat conflicting strategic objectives. First, they must integrate human resource policies and practices across a number of subsidiaries in different countries so that overall corporate objectives can be achieved. At the same time, the approach to HRM must be sufficiently flexible to allow for significant differences in the type of HR policies and practices that are most effective in different business and cultural settings. This problem of balancing integration (control and coordination from HQ) and differentiation (flexibility in policies and practices at the local subsidiary level) have long been acknowledged as common dilemmas facing HR and other functional managers in global corporations. Although some argue that IHRM is not unlike HRM in a domestic setting, others point out that there are significant differences. Specifically compared with domestic HRM, IHRM (I) encompasses more functions, (2) has more heterogeneous functions, (3) involves constantly changing perspectives, (4) requires more involvement in employees personal lives, (5) is influenced by more external sources, and (6) involves a greater level of risk than typical domestic HRM. When compared with domestic human resource management, IHRM requires a much broader perspective on even the most common HR activities. This is particularly so for HR managers operating from a MNCs headquarters (HQ). The number and variety of IHRM activities are daunting. International HR managers must deal with issues as varied as international taxation; international relocation and orientation; various other administrative services for expatriates; selecting, training and appraising local and international employees; and managing relations with host governments in a number of countries around the world. Even when dealing with one particular HR function area such as compensation, the international HR manager is faced with a great variety of national and international pay issues. For example, while dealing with pay issues, the HQ-based HR manager must coordinate pay systems in different countries with different currencies that may change in relative value to one another over time. An American expatriate in Tokyo who receives a salary of $100,000 may suddenly find the buying power of that salary dramatically diminished if the Japanese yen strengthens in value

relative to the US dollar. A US dollar purchased 248 yen in 1985, but less than 110 yen in 2000. In the case of fringe benefits provided to host company employees, some interesting complications might arise. For instance, it is common in the United States to provide health insurance benefits to employees and the employees family, which usually means spouse and children. In some countries however, the term family may include a more extended group of relativesmultiple spouses, aunts, uncles, grandparents, nephews, and nieces. How does the firms benefit plan deal with these different definitions of family? A final aspect of the broader scope of IHRM is that the HQ-based manager deals with employee groups that have different cultural backgrounds. The HQ manager must coordinate policies and procedures to manage expatriates from the firms home country (parent country nationals, PNCs), host-country nationals (HCNs), as well as third country nationals (TCNs, e.g. a French manager working for an American MNC in the firms Nigerian subsidiary) in subsidiaries around the world. Although such issues are important for the HQ-based manager, they are also relevant to the HR manager located in a subsidiary. This manager must develop HR systems that are not only acceptable to the host country but also compatible with company-wide systems being developed by his or her HQ-based counterpart. These policies and practices must effectively balance the needs and desires of local employees, PCNs and TCNs. It is at the subsidiary level that the increased involvement of IHRM in the personal lives of employees becomes particularly apparent. It is not unusual for subsidiary HR managers to be involved in arranging housing, healthcare, transportation, education, and recreation activities for expatriate and local staff. IHRM activities are also influenced by a greater number of external forces than are domestic HR activities. The HQ-based manager may have to set equal employment opportunity (EEO) policies that meet the legal requirements of both the home country and a number of host countries. Because of the visibility that foreign firms tend to have in host countries (especially in developing countries), subsidiary HR managers may have to deal with ministers, other political figures, and a great variety of social and economic interest groups than would normally be encountered in a purely domestic HRM. P. MORGANS MODEL OF IHRM

Human resource activities Procurement Allocation Utilization of human resources Nations categories where firms expand and operate Host country A country in which the MNE seeks to locate or has already located a facility. Parent country The country in which a companys corporate headquarters is located. Third country Countries other than the one in which the MNC is headquartered or the one in which it is assigned to work by the MNC.

CATEGORIES OF EMPLOYEES IN AN MNE Host-country nationals (HCNs) Employees born and raised in a host country. Advantages No problems with language and culture. Reduced hiring costs. No work permits required. Disadvantages Head Quarters may have less control over operations. HCNs may still have limited career opportunities outside the subsidiary. Parent-country nationals (PCNs) Employees who were born and live in a parent country. Advantages Control and co-ordination by HQ is maintained. Promising managers get international experience. Assurance that the subsidiary will comply with company objectives policies etc. Disadvantages HCNs promotion opportunities are limited. PCNs may impose an inappropriate HQ style. Compensation differences between PCNs and HCNs may cause problems. Third-country nationals (TCNs) Employees born in a country other than a parent or host country.

Advantages Salary and compensation may be lower than for PCNs. May be more familiar with host country than the PCNs. Disadvantages Transfers must consider national animosities. TCNs may not want to return after assignment. Difference between IHRM and Domestic HRM Responsible for a greater number of functions and activities Broader knowledge of foreign county employment law Closely involved with employees lives Cope with more external influences Exposure to problems and liabilities Management of differential compensation Diversity management More coordination and travel More risk management Variables that moderate difference between Domestic HRM and IHRM

Understand the worldwide business Learn about many cultures Work with many types of people Create cultural synergy Adapt to living in many cultures

Use cross-cultural skills daily Treat foreign colleagues as equals Use foreign assignments as career development

High failure rates of expatriation and repatriation Deployment getting the right mix of skills in the organization regardless of geographical location Knowledge and innovation dissemination managing critical knowledge and speed of information flow Talent identification and development identify capable people who are able to function effectively Barriers to women in IHRM International ethics Language (e.g. spoken, written, body) Different labor laws Different political climate Different stage(s) of technological advancement Different values and attitudes e.g. time, achievement, risk taking Roles of religion e.g. sacred objects, prayer, taboos, holidays, etc Educational level attained Social organizations e.g. social institutions, authority structures, interest groups, status systems Structural arrangement that handles all international operations out of a division created for this purpose o Assures international focus receives top management attention o Unified approach to international operations o Often adopted by firms still in developmental states of international business operations o Separates domestic from international managers (not good) o May find it difficult to think and act strategically, or to allocate resources on a global basis a. b. c. d. e. International Division Structure Global Product Division Global Area Division Global Functional Division Structure Multinational Matrix Structure

International Divisional Structure

Global Production division

Structural arrangement in which domestic divisions are given worldwide responsibility for product groups o o o o Global product divisions operate as profit centers Helps manage product, technology, customer diversity Ability to cater to local needs Marketing, production and finance coordinated on product-by-product global basis o o Duplication of facilities and staff personnel within divisions Division manager may pursue currently attractive geographic prospects and neglect others with long-term potential o Division managers may spend too much time tapping local rather than international markets


Global Functional Division: Structure that organizes worldwide operations primarily based on function and secondarily on product Approach not used except by extractive companies such as oil and mining Favored only by firms needing tight, centralized coordination and control of integrated production processes and firms involved in transporting products and raw materials between geographic areas Emphasizes functional expertise, centralized control, relatively lean managerial staff Coordination of manufacturing and marketing often difficult

Managing multiple product lines can be very challenging because of separation of production and marketing into different departments.

Global Functional Division:


Structure is a combination of global product, area, or functional arrangements Allows organization to create specific type of design that best meets its needs As matrix designs complexity increases, coordinating personnel and getting everyone to work toward common goals often become difficult Too many groups to their own way

Transnational Network Structure Multinational structural arrangement combining elements of function, product, geographic design, while relying on network arrangement to link worldwide subsidiaries At center of transnational network structures are nodes, units charged with coordinating product, functional, and geographic information Different product line units and geographic area units have different structures depending on what is best for their particular operation


Issues and barriers to effective global HRM


Political and Legal Factors Differences between countries and their political and legal institutions create differences in their HRM strategies If the political & legal systems are well-established, global firms can depend on continuity and consistency Business contracts become unenforceable because of instability in internal political & legal factors Economic Factors Different countries have different economic systems Nations with weak economies may not be able to invest in maintaining and upgrading the necessary elements of their infrastructures Cost of living is a major economic consideration Tax structure of the country Cultural Factors Culture is composed of the societal forces affecting the values, beliefs, and actions of a distinct group of people Getting individuals from different ethnic or tribal backgrounds working together may be difficult in some parts of the world Culture can lead to ethical differences among countries Cultural Factors Dimensions to measure culture: Power distance Collectivism versus individualism Uncertainty avoidance Femininity versus masculinity Main Challenges in IHRM: Talent identification and development identify capable people who are able to function effectively


Language (e.g. spoken, written, body) Different labor laws Different political climate Different stage(s) of technological advancement Educational level attained Why There Is Need To Study IHRM And Cross Culture Management? culture is the way in which each of us is programmed to behave in the environment. Cultures are like icebergs; some features are apparent to anyone not in a fog, while others are deeply hidden. Above-the-surface features include overt behaviors: how people dress eat walk talk relate to one another conduct themselves during public ceremonies such as weddings or funerals. Also included are such things as social distance. Other aspects are so far below the surface that they are hard to recognize. We may see evidence of these aspects, but we usually can't pinpoint them precisely and usually don't have a clue where they came from. They are hard to define even for our own culture because we take them in with our mother's language. This might include such things as: how we encode and retrieve information What is justice? Music? Proper parenting? Beauty orugliness? What meaning is attached to "teaching" stories? What does being well educated mean? What constitutes status? other issues include different assumptions,use of language, inappropriate delivery medium, cultural specificity. Communication Miscommunication across cultural lines is usually the most important cause of cross-cultural problems in multinational cos... Miscommunication can have several sources, including: Differences in body language or gestures. The same gesture can have different meanings in different parts of the world. For example, Bulgarians shake their heads up and down to mean no. In addition, the way people count on their fingers is not universal: The Chinese count from one to ten on one hand, and eight is displayed by extending the thumb and the finger next to it. The same gesture is interpreted as meaning two in France and as pointing a gun in North America Role of HR in International firms Major Functions and Activities Human resource planning Staffing Recruitment Selection Placement Performance appraisal Training and development Compensation and benefits Industrial relations Planning for Organizations, Jobs, and People The Strategic Management of Human Resources Human Resource Planning Acquiring Human Resources Selection


Recruitment Integration Building and Motivating Performance HR Development Performance Appraisal Compensation Systems

Strategic Decisions and Their Implications for Human Resource Management

Strategic Decisions and Their Implications for Human Resource Management