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Chapter 9

International HRM
To appreciate the role of HRM in the international organization, high-
lighting links between parent companies and geographically dispersed
affiliates
To understand the impact of diverse cultural and institutional
environments on HR policies and practices in differing locations and
organizational settings
To identify the ways in which relations between management and
employees are evolving in the global context
gain a practical perspective on the issues arising
in cross-cultural organizational environments,
including teams, networks and cross-border
alliances
Aims of the lecture
• To appreciate the strategic role of International HRM (IHRM)
in differing international contexts
• To evaluate the influence of national environmental factors on
HR policies and practices
• To identify the mechanisms designed to further relations
between managers and employees in differing countries
• To appreciate the ways in which cross-cultural management
skills are cultivated and utilized in international business

• To critically examine the IHRM


implications of corporate mergers and
acquisitions
Strategic IHRM
• HRM has become more strategy-oriented than
traditional personnel management.
 Corporate strategy may emanate from the centre, but
the roles of national environments and diverse
stakeholders now impact on HRM.
• IHRM has evolved as the management of people in
diverse locations has grown in importance for MNEs.

• IHRM takes in three elements:


corporate strategy,
environmental factors and
policies & practices.
Elements of international
human resource management
 Home-country insti-  Global competitive strategy
tutions and culture  Fit between corporate and
 Host-country insti- HRM strategy
tutions and culture

str Co  Inter-
 Industry tal at rp
en eg or nationalization
characteris- m
n rs ic ate strategy
ri o cto iss
tics v fa ue  Center-
En s
 Competitive International subsidiary
environment Human Resources relations
Management

IHRM policies and


practices

 Planning  Employer/  Appraisal


 Staffing employee  Training and
 Compensation relations development
International orientation of the
MNE
• HR strategy flows from the firm’s internationalization strategy
and its competitive strategy.
• The parent firm and the foreign subsidiary each have distinct
capabilities, but who determines how they are directed?
 The ethnocentric firm is highly centralized; little local
adaptation.
 The polycentric firm is decentralized, with locally
adaptive policies and informal ties between the HQ and
subsidiaries.
 The geocentric firm combines global corporate
strategy with local communication
and responsiveness.
Types of international
orientations in MNEs
Polycentric Geocentric Ethnocentric
organization organization organization
Decentralized Interdependence between Centralized
structure center and subsidiaries structure
Independently Globally integrated Strategy determined
managed subsidiaries but locally responsive at the center
Systems reflect local Local systems Little adaptation
conditions integrated with center to local conditions
Little control from Collaboration between Systems determined
the center center and subsidiary by the center
National culture and IHRM
Hofstede’s cultural dimensions theory is used to
compare national cultures.
• Countries with large power-
distance – centralized and
hierarchical; sub-ordinates
have little authority.
• Countries with small power distance – more open
channels of communication; greater attention to
employees as individuals.
• Emerging MNEs – mainly from countries of
large power distance, with dominant owners
and weak roles of shareholders and other
stakeholders
National institutional environment
• National institutional environment – public institutions, legal
framework, judicial system and political system.
• Developed countries – tend to have more highly developed
institutions, including social protections, employee rights and
trade union rights.
• Developing countries – tend towards weak employee
involvement, poor working conditions, little legal protection for
employees, limited rights to organize.
• MNEs from developing and transitional economies
generally reflect their weak national institutional
frameworks.
International Labour Organisation

The International Labour Organisation Web site is a large,


rich site which provides up-to-date and comprehensive
information on national labour laws from a great number of
countries. It provides a useful introduction to international
labour standards and human rights information.
Go to resources
and then ILO databases
The key ones are described below:
ILOLEX (International Labour Standards).
NATLEX (Information on national laws, labour, social security, and related
human right issues).
LABORSTA (labour statistics).

Further References
International Employment Relations Resources Online
International Human Resource Management
Figure 9.2: Cultural and institutional environments of IHRM
Cultural dimensions National culture Legal framework
Language(s) Political system
Religion(s) Employment regulation
Social structures Institutional environment Labor law

 
Subsidiary
Parent company

Types of outward
(equity based)

expansion
Affiliate company
Investing company
(non-equity based)

Joint venture investor Local partner

Corporate values Organizational culture Hierarchies


Communications Centralized or
Formalities Decentralized
Behavioral norms Organizational environment Corporate governance
IHRM policies and practices
• HR planning – overall process of devising a co-ordinated
system incorporating all HR functions.
• Staffing policies and processes
• Parent-country nationals (PCNs) – Expatriates sent to
foreign subsidiary to oversee processes (typical of
ethnocentric firm)
• Host-country nationals (HCNs) – Recruited for operations,
and also for supervisory roles (used in polycentric firms)
• Third-country nationals (TCNs) – Person from neither
home or host country, but with cross-cultural skills and
global outlook (typical of the geocentric firm)
Figure 9.3: International HR planning
• Staffing
Criteria, number
of staff, business
unit, location
• Competitive • Compensation
environment packages
• Recruitment Local variations
• Corporate Centralized or
strategy local processes,
International competencies • Training and
• National HR planning needed development
environmental Local needs
factors
• Home-country • Selection • Appraisal
Techniques, Adjustments for
institutional structured and
environment cultural differences
unstructured
interviews
Compensation
• Reward package = Monetary and non-monetary rewards
• Monetary rewards
• Matter most to employees? In Europe and America,
probably yes, but varies with cultural environment.
• Performance-related pay – Links financial reward directly
to performance of specific tasks or targets; not universally
applicable.
• Flexibility and adapting to employee’s needs is of growing
concern in IHRM.
• Work-life balance – Employers allow flexibility to staff in
arranging work duties and personal life.
Training and development
• Building competencies and skills of individual employees
• Must fit with the organization’s strategy and the individual
employee’s personal development.
• Socialization – Becoming familiar with the organization’s
culture and way of doing things.
• HR development policies
• Parent company HR strategy is determinant – can tend
towards global integration or local responsiveness.
• Skills in the workforce are a source of competitive
advantage, and its opposite – skills shortage – can hold
back expansion.
Case Study 9.1:
Look good and feel good with l’Oréal
(page 335)

1. In what ways are l’Oréal’s staffing and recruitment


policies linked to its IHR strategy?

L’Oréal’s IHR strategy is based on international


outlook and cross-cultural competencies. It
recruits staff internationally, and is keen to
attract people who wish to work in different
countries. The company takes the view that
moving to new countries and taking on new
roles is essential to career development.
Case Study 9.1:
Look good and feel good with l’Oréal
(page 335)

2. How are L’Oréal’s IHR policies reflective of its


corporate goals?

L’Oréal’s corporate goals focus on its wide


portfolio of brands, which are sold in a
wide range of markets. The brands include
consumer brands, luxury brands and
specialist brands, as well as Body Shop, with
its emphasis on fair trade policies. Its
IHR policies reflect the diversity in its brands
and also the diversity in its markets.
Case Study 9.1:
Look good and feel good with l’Oréal
(page 335)

3. Describe L’Oréal’s training and development


policies. How does it underpin the company’s
emphasis on multicultural teams?

L’Oréal views training and development as directed


towards taking on new challenges and acquiring
new skills, which are linked to a new country, new
role or new brand. Managers are moved every 3-4
years to a new location. The result is that in any
location, there are people from diverse
backgrounds, in terms of culture, job skills,
professional experience and experience of
different brands. This makes for highly diverse
multicultural teams. The company sees this
approach as an asset, as such teams generate
more ideas than would emerge in a less diverse
organization.
Case Study 9.1:
Look good and feel good with l’Oréal
(page 335)

4. How is l’Oréal’s global strategy evolving, and how


will this affect its IHR policies?
L’Oréal is now focusing more on emerging markets, which
have greater scope for growth than the mature markets of
Western Europe and North America. Looking at Figure 2,
note that in 2006, these were quite small compared to its
established markets. R&D is concen-trated in France, and
it is possible that, as emerging markets become more
significant, R&D activities might be shifted. In general, it
is likely that more emphasis on emerging markets will
lead to more staff recruitment in emerging countries. Asia
is a relatively small market, but this market has scope for
considerable growth, and designing distinctive products
for Asian consumers is a possibility. The reward system
would probably have to be adapted for Asian staff, along
with the training and development policies.
Employee relations
• Employee relations – practices which involve managers and
employees in workplace communications and decision-making
• May be direct or through intermediary bodies, such as unions
• Employee empowerment – policy of devolving decision-making
and responsibility to employees
• Works councils – representative bodies in the workplace which
give employees rights to information & consultation
• Recall the principle of co-determination in corporate
governance, which operates in many European countries.
• Cultural and institutional environment influences the extent and
effectiveness of all these mechanisms.
Figure 9.4: Employee relations in the MNE
Industrial relations
• Historically reflect organizations seeking workers’ rights during
periods of industrialization; often confrontational
• Independent trade union – organization of workers
independent of the employer or other control body, which
seeks better terms and conditions for members.
• Trade unions have seen declining membership in many
developed countries, especially in manufacturing industries.
• In many developing countries, independent trade unions
are banned or restricted.
• Strikes and other types of industrial action are controlled by
national law.
Figure 9.5: Trade union density in selected countries
The transnational manager
• The transnational manager understands and adapts to
differing cultures, often moving among several of the firm’s
foreign locations.
• The requirements – a blend of knowledge, skills and abilities:
• Knowledge of relevant foreign language
• Understanding of foreign business practices
• Ability to adapt to differing cultural environments
• Inter-personal skills
• Training and cultural acclimatization improve the likelihood of
success in the international assignment.
Figure 9.6: The transnational manager
Cross-cultural teams
• Teamworking may be internal to the company or involve
partner firms.
• The benefits of cross-cultural teams:
• Participants gain understanding of different perspectives
and ways of doing things, building cross-cultural
competencies.
• Diversity is a creative spur, generating more ideas.
• Cross-cultural teams reflect the firm’s differing locations.
• Teamworking among culturally diverse people involves
reaching a consensus on purpose, roles and methods of
decision-making.
IHRM in international alliances
• The international joint venture typically involves firms from
different countries, each parent firm influencing the new firm.
• Organizational and individual relations determine goals,
processes and performance:
The two parent firms
Relations between: The new firm and the environment
Each parent and the new firm
• Staffing and HR development between the two parents and
the new firm help to create the management skills needed in
these co-operative ventures.
Acquisitions and IHRM
• Cross-border mergers and acquisitions now
encompass companies from both developed and
developing countries

• Can involve privatization of a state-owned organization, or a


state-controlled company taking over a privately-owned firm
• Issues which arise:
• Whether the targeted firm will have to slim down
operations, and how
• How to reconcile differing corporate cultures and
HR policies
• Degrees of integration are possible from
independence to full integration.
Degrees of integration in acquired organizations
Figure 9.8: Foreign acquisitions by emerging
market companies
Source: Financial Times, 29 November 2006
How Swedish MNCs select their expatriates: three case studies
University essay from Luleå tekniska universitet/Industriell ekonomi och samhällsvetenskap/Industrial marketing and e-commerce
Author: Moa Streling; [2008]
Keywords: Expatriates; Expatriate selection process; Expatriate selection criteria; IHRM;
Abstract: International human resource management is an important component of
MNCs' global strategies and due to the complexity of managing international operations
it is important to have the right people at the right place and at the right time. The
purpose of this study is to gain a better understanding of how Swedish MNCs select their
expatriate managers. With a qualitative and descriptive approach three case studies
were conducted, looking at three Swedish MNCs by using in-depth telephone interviews.
When looking at the motives for sending managers abroad as expatriates it was found
that Swedish MNCs generally have the objective to develop the organizations abroad
and implement informal control. Furthermore, it is common among Swedish MNCs to
invest in expatriates if they believe that it can provide future advantages.
Considering the expatriate selection process it was found that
an informal expatriate selection generally is applied, where
clearly defined characteristics of the selection process are hard
to find. Finally, when looking at criteria for expatriate selection it
was found that Swedish MNCs believe that the technical ability
and the expatriate candidates' previous experience are
important criteria for expatriate selection.
CLICK HERE TO DOWNLOAD THE WHOLE ESSAY. (in PDF format)
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Conclusions
• Meeting the challenge of managing people in diverse cultural
environments is the focus of strategic IHRM.
• Designing HR policy and practices in the MNE involves
balancing corporate goals and strategy with local
responsiveness and environmental sensitivities.
• Evolving mechanisms for employee voice and involvement
recognize the need to balance corporate and individual needs.
• Cross-cultural competencies contribute to managing foreign
subsidiaries and benefiting from local capabilities.
• IHRM is crucial to the success of cross-border alliances and
acquisitions.