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MBA 09 HR 05 INTERNATIONAL HUMAN RESOURCE MANAGEMENT

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INTRODUCTION TO IHRM1. Meaning of IHRM, Difference between domestic and International HRM2. Issues and barriers to effective global HRM3. 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

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Categories of Employees in MNEHost-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.,

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Defining International HRM from the perspective of a multinational firm

Before offering a definition of international HRM, we should first define the general fieldof HRM. Typically, HRM refers to those activities undertaken by an organization toeffectively utilize its human resources. These activities would include at least the following:

1. Human resource planning2. Staffing3. Performance management4. Training and development5. Compensation and Benefits6. 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 & Florkowski’s–world-wide management of human resources with the purpose of enablingthe multinational enterprise to perform successfully.

Dowling and Welch’s (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).•Scullion’s (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.

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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 corporation’s 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 MNC’s 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.

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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 employee’s family, which usually means spouse and children. In some countries however, the term “family” may include a more extended group of relatives—multiple spouses, aunts, uncles, grandparents, nephews, and nieces. How does the firm’s 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 firm’s 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 firm’s 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. MORGAN’S MODEL OF IHRM

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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 company’s 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.

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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

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• 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. International Division Structure b. Global Product Division c. Global Area Division d. Global Functional Division Structure e. Multinational Matrix Structure

International Divisional Structure

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Global Production division

Structural arrangement in which domestic divisions are given worldwide

responsibility for product groups

o Global product divisions operate as profit centers

o Helps manage product, technology, customer diversity

o Ability to cater to local needs

o Marketing, production and finance coordinated on product-by-product global

basis

o Duplication of facilities and staff personnel within divisions

o 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

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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:

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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 design’s complexity increases, coordinating personnel and

getting everyone to work toward common goals often become difficult • Too many groups to their own way

Transnational Network StructureMultinational 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

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Issues and barriers to effective global HRM

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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.

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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 AmericaRole 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

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Strategic Decisions and Their Implications for Human Resource Management