International Human Resource Management: HRM 2020 Set by Habtamu Dadi (PHD)

Chapter 8
International Human
Resource Management
HRM 2020 Set By

Habtamu Dadi (PhD)
Domestic vs. International HR
 Basic function and objective remains the
same: Human resource planning, Recruitment
and selection, training and development,
Performance appraisal, compensation, labour
relations.
 Primary difference between IHR and domestic
HR lies in the complexity of operating in

different countries with different cultures and
laws.
HRM 2020 Set By Habtamu Dadi

(PhD)
(PhD)
1. More HR activities
• IHRM has boarder scope in dealing with

employment related issues.
• For example: International taxation, host country

regulations, home country regulations,
international orientation of relocating and
training of employees, and administrative and
compensation issues of expatriates, and
language translation services

(PhD)
Each HR functions has different scope and issues in IHRM
HR Planning
• Difficulty in implementation of HR policy and procedure in host country
• Difficulty in aligning business strategy with HR strategy
• Providing career development opportunities to international managers
Hiring
• Matching person and organizational fit (cultural match)
• Selection of expatriates
• Managing expatriates failures
• Managing repatriation process

(PhD)
Training and Development
• Language training
• Cultural training
• Training of expatriates and managers
Compensation
• Deciding compensation of expatriates
• Deciding compensation of parent, host, and third country nationals
Performance Management
• Implementation of performance evaluation system in host country
• Physical distance, time difference, and reporting cost
• Raters to evaluate subsidiary performance

(PhD)
Industrial Relations
Who should deal industrial relations issues in subsidiary?
What is attitude and policy of parent company toward unions in

subsidiary?
What should be tactics to deal with unions in subsidiary?

(PhD)
2) Need for Broader Perspective
• In dealing with compensation issues, HR manager in

headquarter need to consider different pay systems for
parent, host, and third country nationals, paying in
different currencies, and change in relative value of
currency
• In deciding fringe benefits, HR managers face
difficulty, in most countries providing health insurance
is compulsory, whereas definition of dependent varies
from country to country, in some countries dependent
means multiple spouses, children, parents,
grandparents
• Dealing with inflation and unexpected changes in exchange rates
• Providing sufficient pay to keep individuals
• Should company pay hardship allowance?
• Dissatisfaction with cost of living allowances

(PhD)
3) More involvement in employees’ personal lives
In IHRM, there is more involvement of HR department in dealing with

their personal issues for better selection, training, relocation and
effective management of global workforce
HRM department need to ascertain that managers selected for foreign

assignment understand housing, health care, and remuneration package
HRM need to have more information about manager family, schooling of

their children, emotional and physical health of their spouse and children
etc.
‘International Human Resource Services’ section provide services to

managers like handling investment, banking, home rental, house
arrangements, home visits, and repatriation issues
Unlike domestic HRM in International HRM, HR manager needs to

understand more about their personal lives and provide support in
relocation for foreign assignment even assistance to children left behind

(PhD)
4) Greater Work force Diversity
IHRM requires more emphasis on management of global and
diversified work force
Different work ethics, motivation level, cultural compatibility,

managing team work are main issues that IHRM to handle
5) Change in Emphasis
Emphasis has changed from idea of repatriation and dependence on
third country nationals towards development of local managers
As more trained local managers are available, the issue of training

and development of local managers come to highlight
Designing programs and policies to provide development

opportunities to local managers by placing them in headquarter

(PhD)
7) External Influence
MNCs operating in host country face more external influence
as opposed to local company
Federal and local government, political figures, political and

social groups exert great pressure on foreign company
Subsidiary manager need to know local way of doing business,

dealing with different ministries, political parties, social groups
and labour unions

(PhD)
International HRM
 International human resource management is
the process of managing people across
international boundaries by multinational
companies.
 HRM is more complex in an international
business because of differences between

countries in labour markets, culture, legal
systems, economic systems, and soon.

(PhD)
Issues in International HRM
 There are a number of issues that specifically

affect the practice of international as distinct from
domestic HRM.
 These are the impact of
 globalization,
 the influence of environmental and cultural
differences,
 the extent to which HRM policy and practice
should vary in different countries
 and the approaches used to employ and manage
expatriates.

(PhD)
Dimensions of IHRM
IHRM is the interplay among 3 dimensions:
1. HR Activities (procure, allocate, utilize)
2. Types of employees ( Host country national,
parent country national, Third country
national)
3. Types of Countries (Host, Home, Other)

(PhD)
Dimensions of IHRM

(PhD)
Types Of Staffing Policy
There are three main approaches to staffing

policy within international businesses:
The strategy for managing across cultures
◦ The ethnocentric approach
◦ The polycentric approach
◦ The geocentric approach

(PhD)
Ethnocentric approach
Ethnocentric predisposition is a nationalistic philosophy
of management whereby the values and interests of the
parent company guide strategic decisions (staffing policy
fills key management positions with parent country
nationals).
Firms that pursue an ethnocentric policy believe that:
 there is lack of qualified individuals in the host country
to fill senior management positions

 It is the best way to maintain a unified corporate
culture
 Value can be created by transferring core competencies
to a foreign operation via parent country nationals

(PhD)
 The ethnocentric staffing policy is no longer
popular with most firms because:
 It limits advancement opportunities for host
country nationals
 It can lead to ‘cultural myopia’

(PhD)
Polycentric approach
Recruits host country nationals to manage
subsidiaries in their own country, and parent country
nationals for positions at headquarters
 Decentralized HR
 Managed by Home Country Nationals (HCNs)
 Pay based on local market
 Training given added importance
 The polycentric approach
 Can minimize cultural myopia
 May be less expensive to implement than an
ethnocentric policy

(PhD)
 There are two disadvantages to the
polycentric approach:
 Host country nationals have limited
opportunities to gain experience outside their
own country and thus can not progress
beyond senior positions in their own
subsidiaries
 A gap can form between host country
managers and parent country managers

(PhD)
Geocentric approach
 Global workforce deployed throughout the world
 Positions filled by most qualified regardless of
nationality: HCNs, PCNs, or TCNs,
 This approach is consistent with building a strong
unifying culture and informal management network
 Enables the firms to make the best use of its human
resource
 Build a cadre of international executives who feel at
home working in a number of different cultures
 Immigration policies of national governments may limit
the ability of a firm to pursue this policy
 It is costly to implement

(PhD)
Comparison of Staffing Approaches
Staffing Strategic
Approach Appropriateness Advantages Disadvantages
Ethnocentric International Overcomes lack of Produces resentment

qualified managers in host country
host nation
Unified culture Can lead to cultural
Helps transfer core myopia
competencies
Polycentric Multidomestic Alleviates cultural Limits career mobility
myopia Isolates headquarters
Inexpensive to from foreign
implement subsidiaries
Geocentric Global and
Uses human resources National immigration
Transnational efficiently policies may limit
Helps build strong implementation
culture and informal Expensive
management network
HRM 2020 Set By Habtamu Dadi (PhD)

Managing expatriates
 Expatriates are people working overseas on

long- or short-term contracts who can be
nationals of the parent company or ‘third
country nationals’ (TCNs) – nationals of
countries other than the parent company who
work abroad in subsidiaries of that company.
 In simple term: Expatriate is a citizen of one
country living and working in another

country.

(PhD)
 HRM must also determine when to use the
expatriate, how they should be compensated,
how they should be trained, and how they
should be reoriented when they return home.
 Expatriate failure is the premature return of

an expatriate manager to his or her home
country

(PhD)
REASONS FOR EXPATRIATE FAILURE
Research shows it varies from country to country

 Spouse inability to adapt/adjust
 Manager inability to adapt/adjust

 Other problems within the family
 The manager’s personal or emotional maturity
 The manager’s inability to cope with larger
overseas responsibilities
 Lack of technical proficiency/competence by
managers
 No motivation for assignment

(PhD)
Firms can reduce expatriate failure
through improved selection procedures
Four dimensions that predict expatriate success
are:
 1. self-orientation - the expatriate's self-esteem,
self-confidence, and mental well-being

 2. others-orientation - the ability to interact
effectively with host-country nationals

 3. perceptual ability - the ability to understand
why people of other countries behave the way

they do
 4. cultural toughness – the ability to adjust to a
particular posting

(PhD)
Cultural Difference in Human
Resource Management
 National culture is important in HRM because
it affects human behavior and thus has an
impact on management action.
 IHRM have to understand the impact of
different national culture and management

practices
 If international managers do not know
something about cultures of the countries they

deal with, the results can be quite disastrous.

(PhD)
Cultural environment
How Inter-country difference affects HRM? (cultural
factors, Economic factors and labor costs)
 Language
 Communication style
 Time orientation
 Religion
 Respect/formality
 Consensus seeking, negotiation style
 Law of country
 Technology
 What motivate people

(PhD)
Cultural diversity
 Most importantly, culture affects how people
think and behave.
 Therefore, cultural differences have impacts
on international management.
 An example of handshake:
American (firm), Asian (gentle), British (soft),

French (light and quick), Latin American
(moderate grasp)
 Priorities of cultural values are not the same
in different countries or groups of countries.

(PhD)
Values in culture
 Values are basic convictions that people have

regarding what is right and wrong, good and
bad, important and unimportant.
 These values are learned from the culture in
which the individual is reared, and they help

direct the person’s behavior.
 Differences in cultural values often result in
varying management practices.

(PhD)
Understanding the difference in
culture
 1. Geert Hofstede Culture dimension
 2. cultural difference on motivational need of
employees

(PhD)
Geert Hofstede Cultural dimension
 1. Power Distance Index (PDI)
 2. Uncertainty Avoidance (UAI)
 3. Individualism/collectivism
 4. Masculinity
 5. Long term orientation

(PhD)
Power distance:
 The extent to which less powerful members

of institutions and organizations accept that
power is distributed unequally.
 Countries in which people blindly obey the
orders of their superiors have high power
distance. This should be observed at lower
levels or even upper levels.

(PhD)
Uncertainty avoidance
 The extent to which people feel threatened by

ambiguous situations and have created
beliefs and institutions that try to avoid
these.
 Countries populated with people who do not
like uncertainty tend to have a high need for

security and a strong belief in experts and
their knowledge; examples include Germany,
Japan, and Spain.

(PhD)
Individualism
 The tendency of people to look after

themselves and their immediate family only.
 Collectivism (in contrast to individualism) is
the tendency of people to belong to groups

or collectives and to look after each other in
exchange for loyalty.
 Hoftstede’s findings show that the wealthy
countries have higher individualism scores

and poorer countries higher collectivism
scores. (GNP based wealth)

(PhD)
Masculinity
 A cultural characteristic in which the

dominant values in society are success,
money, and things.
 In contrast, femininity is the term used by
Hofstede to describe a situation in which the

dominant values in society are caring for
others and the quality of life.

(PhD)
Hofstede’s Five Dimensions of Culture
How Countries Differ
1. Individualism/Collectivism Describes the strength of the relation
between an individual and other individuals
in the society.
2. Power Distance Concerns the way the culture deals with
unequal distribution of power and defines
the amount of inequality that is normal.
3. Uncertainty Avoidance Describes how cultures handle the fact that
the future is unpredictable.
4. Masculinity/Femininity The emphasis a culture places on practices
or qualities that have traditionally been
considered masculine or feminine.
5. Long-term/Short-term Suggests whether the focus of cultural
Orientation values is on the future (long term) or the
past and present (short term).
(PhD)
Cultural difference in motivational
need of employee
 One factor which motivate employee may not
be the motivating factor for another
 Mostly employees are motivated by
interesting work and good wage. Employee

education, cultural difference, financial
condition, and other context determine.

(PhD)
Training for expatriate
 Cultural training, language training, practical
training about host country

(PhD)
Cross-Cultural Training Methods
 Cultural Briefings Explain the major aspects of the host country
culture, including customs, traditions, every day
behaviors.
 Area Briefings Explain the history, geography, economy,

politics, and other general information about the
host country and region.
 Cases Portray a real-life situation in business or
personal life to illustrate some aspect of living
or working in the host culture.

(PhD)
Cross-Cultural Training Methods (cont.)
Allows the trainee to act out a situation that he
 Role Playing or she might face in living or working in the
host country.
 Culture Assimilator Provides a written set of situations that the

trainee might encounter in living or working in
the host country. Trainee selects one from a set
of responses to the situation and is given
feedback as to whether it is appropriate and
why.
 Field Experiences Provide an opportunity for the trainee to go to

the host country or another unfamiliar culture to
experience living and working for a short time.
(PhD)
Repatriation of Expatriate
 Preparing and developing expatriate mangers
for reentry into their home country
organization is an important part of training
and development
 HRM needs to develop good program for re-
integrating expatriate back into work life

within their home country organization once
their foreign assignment is over, and for
utilizing the knowledge they acquired while
abroad.

(PhD)
National difference in Compensation
 There are substantial difference in executive
compensation across countries.
 An expatriate compensation package is made up of
1. Base salary- same as for similar work in home

country
2. A foreign service premium- extra payment for
working outside
3. Various allowance (housing, hardship, cost of
living, education)
4. Tax differentials (Depends on country law)
5. Benefits (medical, pension--)

(PhD)
(PhD)
International Corporation
Domestic firm that uses its

existing capabilities to move
into overseas markets.
Multinational Corporation (MNC)
Firm which independent

business units operating in
multiple countries.
Global Corporation
Firm that had integrated

worldwide operations
through a centralized home
office.
Transnational Corporation
Firm that attempts to balance

local responsiveness and
global scale via a network of
specialized operating units.
Types of Organizations
Global Transnational
Views the world as a single Specialized facilities permit
High market; operations are local responsiveness; complex
controlled centrally from the coordination mechanisms
corporate office. provide global integration.
Global
Efficiency
International Multinational
Low Several subsidiaries operating
Uses existing capabilities to
as stand-alone business units in
expand into foreign markets.
multiple countries.
Low High
Local Responsiveness

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Chapter 8

HRM 2020 Set By

HR lies in the complexity of operating in

HRM 2020 Set By Habtamu Dadi

• IHRM has boarder scope in dealing with

• For example: International taxation, host country

HRM 2020 Set By Habtamu Dadi

• Difficulty in implementation of HR policy and procedure in host country

• Difficulty in aligning business strategy with HR strategy

• Providing career development opportunities to international managers

• Matching person and organizational fit (cultural match)

• Managing expatriates failures

• Managing repatriation process

HRM 2020 Set By Habtamu Dadi

• Training of expatriates and managers

• Deciding compensation of expatriates

• Deciding compensation of parent, host, and third country nationals

• Implementation of performance evaluation system in host country

• Physical distance, time difference, and reporting cost

• Raters to evaluate subsidiary performance

HRM 2020 Set By Habtamu Dadi

Who should deal industrial relations issues in subsidiary?

What is attitude and policy of parent company toward unions in

What should be tactics to deal with unions in subsidiary?

HRM 2020 Set By Habtamu Dadi

• In dealing with compensation issues, HR manager in

HRM 2020 Set By Habtamu Dadi

In IHRM, there is more involvement of HR department in dealing with

HRM department need to ascertain that managers selected for foreign

HRM need to have more information about manager family, schooling of

‘International Human Resource Services’ section provide services to

Unlike domestic HRM in International HRM, HR manager needs to

HRM 2020 Set By Habtamu Dadi

Different work ethics, motivation level, cultural compatibility,

As more trained local managers are available, the issue of training

Designing programs and policies to provide development

HRM 2020 Set By Habtamu Dadi

Federal and local government, political figures, political and

Subsidiary manager need to know local way of doing business,

HRM 2020 Set By Habtamu Dadi

business because of differences between

HRM 2020 Set By Habtamu Dadi

 There are a number of issues that specifically

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

There are three main approaches to staffing

HRM 2020 Set By Habtamu Dadi

to fill senior management positions

to a foreign operation via parent country nationals

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

HRM 2020 Set By Habtamu Dadi

Ethnocentric International Overcomes lack of Produces resentment

HRM 2020 Set By Habtamu Dadi (PhD)

 Expatriates are people working overseas on

country living and working in another

HRM 2020 Set By Habtamu Dadi

 Expatriate failure is the premature return of

HRM 2020 Set By Habtamu Dadi

Research shows it varies from country to country