International Human Resource Management

(IHRM)

 Introduction:

The advent of the era of liberalization and globalization along with the advancements in
information technology (IT) has transferred the world around us. It has brought to centre
stage the importance of human resources, more than ever before. The purpose of human
resource management (HRM) is to enable appropriate deployment of human resource so
that the quality culture can maintain and satisfy the customers not only in national level but
to in global level.

In a competitive scenario, effective utilization of human resources has become necessary

and the primary task of every organization is to identify, recruit and channel competent
human resources into their business operations for improving productivity and functional
efficiency.

Emergency of trade blocks with the formation of different economic and political forums like
European Union, North American Free Trade Association, Asia Pacific Economic conference
and expanding role of World Trade Organization have now significantly changed the
business environment in terms of competition / liberalization and open end marketing
opportunity. Business environment become global business environment.

Internalization of business now experts influence not only on labour markets and staffing
requirements but also on HR practices. Multi domestic operations (MDOs), Joint Ventures
(JVs) and strategic Alliance (SA) are common forms of business structures across regions.
Changes in organizational structures, relationships with overseas operations, state – of – the
art communications technology and global market now demand different HR approaches for
managing MNCs. Globalization of business has probably touched the HR managers more
severely than any other functional heads. The HR executives needs to give international
orientation to what ever he or she does – employee hiring, training and development,
performance review, remuneration, motivation, welfare, or industrial relations.
International orientation assumes greater relevance as business get increasing interlinked
across nations.

Since an international business must procure, motivate, retain, and effectively utilize
services of people both at the corporate office and at the foreign plants, therefore, the
process of procuring, allocating and effectively utilizing human resources in an international
business is called International Human Resource Management.

 Definitions of IHRM:

IHRM can be defined as a set of activities aimed at managing organizational human

resources at international level to achieve organizational objectives and achieve competitive
advantage over competitors at national and international level

International Business must procure, motivate, retain and effectively utilize services of
people both at the corporate office and foreign plant. The process of procuring, allocation,
effectively utilizing human resources in an international business is called International
Human Resource Management.
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  Dimensions of IHRM:

According to P.V. Morgan: IHRM is the interplay among 3 dimensions:

1. HR Activities
2. Types of employees
3. Types of Countries

Dimension Model of IHRM.

1. Broad activities of IHRM – procurement, allocation and utilization of human

resources cover all the six activities of domestics HRM i.e, HR planning, Employees
Hiring, Training and Development, Remuneration, Performance Management and
Industrial Relations.
2. The three national or country categories involved in IHRM activities are:
- The host country where subsidiary may be located
- The home country where the company has its head quarters and
- Other countries that may be sources of labour or finance.

3. The three types of employees of an international business are – Parent Country

Nationals (PCNs) , Host Country Nationals (HCNs) and Third Country Nationals
(TCNs). For example, IBM which employs Australian citizens in its Australian
operations, after sends US citizens to Asia Pacific countries on assignment, and may
send some of its Singaporean employees to its Japanese operations.

 Purpose of IHRM:

To enable the firm /, the multinational corporations (MNCs), to be a successful globally.

 Objectives of IHRM:

1. Remaining competitive throughout the world

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 2. Efficient
3. Locally Responsive
4. Flexible and adaptive
5. Capable to transforming learning across their globally dispersed units

 Difference Between domestic and IHRM:

One obvious difference between domestic and international HRM is that staff are moved
across the national boundaries into various roles within the international firm’s foreign
operations – these employees have traditionally been called ‘expatriate’. An expatriate is an
employee who is working temporarily residing in a foreign country. However, as pointed out
by Dowling (1999) domestic HRM is involved with employees within only one national
boundary; on the other hand IHRM deals with 3 nationals or country categories (expatriate):
PCN, HCN and TCN. So, broadly there are two major factors therefore which differentiate
domestic HRM from IHRM.
1. The complexities of operating in different countries / cultures
2. Employing different nationals and different categories of workers across border.
It has been also argued by Dowling (1999) that the complexities of IHRM can be attributed to
six factors that differentiate international from domestic HRM. Theses are:
1. A wide range of HR activities
1) The need for a broader perspectives
2) More Involvement in employee’s personal life.
3) Responsiveness to changes in staffing requirements as international strategy
changes.
4) Higher risk exposure
5) More external influences.

However, the international dimension brings with it a host of issues, which the domestic HR
functions would not normally get involved in. The practice of HRM in the international
context is different from its domestic counterpart in a number of ways. These include:
1. Being responsible for a greater number of functions and activities such as selection,
training and management of international assignees.
2. Having to expand one’s area of expertise to include a much broader knowledge of
foreign country employment laws and global organization designs.
3. Having to get much more closely involved with employees lives as the firm moves
employees to foreign assignments. For example, collecting information and
furnishing to visa authorities about aids or material status of employees.
4. Being involved with greatly expanded and constantly changing mix of employees
(from the host countries and foreign locals), adding considerable diversity and
complexity to the HR tasks.
5. Having no cope with more external influences; for example, having to consider the
impact of foreign cultures and laws.
6. Having to face greater exposure to problems and liabilities (for example, making
mistakes in expatriate assignments can cost as much as US$4 million per assignee).
The accumulated direct and indirect costs can be huge.
7. Additional responsibilities like translation of language, both at headquarters and at
the subsidiary level, organizing schooling and housing for expatriates and providing
administrative services.
8. Management of differential compensation due to variety of allowances and
adjustments.
9. More emphasis on activities like international relocation and orientation, both pre

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 departure and post departure cultural training. Knowledge of international taxation,
rate of inflation and cost of living, including currency fluctuation.
10. Diversity management, like managing people from different cultural and political
backgrounds and gender differences.
11. More contacts with Government officials for obtaining visas, work permits, tax
certificates, fixing of meetings and so on.
12. More coordination and travel to assess performance of expatriates and solve
problems.
13. More risk management as threats from terrorists, Kidnappers and protecting
intellectual property rights of firms.
14. More risk management as threats from terrorists, kidnappers and protecting
intellectual property rights of firms.
15. More public relations work to enhance the multinationals image and deal with
human rights and other NGOs and interest group operating in different countries.

 Factors influencing the global work Environment?

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 How International assignments create an Expatriate?

TCNs TCNs
Other countries
Nationals

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Here we have to remember that IHRM Department is purely heterogeneous in nature
because it deals the diverse cultures i.e. amalgamation of Global Workforce. (PCN (Parent
Country Nationals), HCN (Host Country Nationals) and TCN (Third Country Nationals). What
types of people required where or which unit it is depends on the following points:

• Availability of useful human resources

• Economic Justification / cost effectiveness
• Employee motivation and performance
• Global exposure for need of the organization
• Development of Cross cultural Management
• Brand Loyalty or International fame.

 PCN (Parent-country nationals) are employees whose nationality is the same as that
of the firm headquarters — for example, a German employee of a German company
who is working at a Chinese subsidiary.
 HCN (Host-country nationals) are employees who have the same nationality as the
local subsidiary. This could be a Chinese employee working at the Chinese subsidiary
of the German company
 TCN (Third-country nationals) are employees whose nationality is different from that
of either the headquarters or the subsidiary office. In the above scenario, this might
mean an Indian employee working at the Chinese office of the German company.
 Significance of IHRM in International Business:

Scullion (2001) outlined 10 major significance of IHRM in globally business environment. This
significance can categorized in 5 key areas:

Challenge

Commitment
Congruence
Signific
ance

Competence Cost
Effectiveness

CHALLENGE:

ƒ Rapid growth of internalization and global competition has increased the nos. and
significances of MNCs – resulting in the increased mobility of human resources.

ƒ Increasing no. of strategic alliances and cross border mergers and acquisitions has
increased the strategic implementation of IHRM as Global business.

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COMMITMENT:

1. Worldwide recognition of management of human resources in international business

and cross cultural management.

2. Business Networks and Horizontal communication and HR plays a vital role.

COST EFFECIVENESS:
ƒ The performance of expatriates. (poor performance of expatriate may affect the
market share and damage to foreign relations)
ƒ Growing Importance of Expatriates in International Business.

COMPETENCE:
ƒ Global Strategy Implementation.
ƒ Success or failure of international business based on effectiveness of management of
HR.

CONGRUENCE:

ƒ Learning, knowledge acquisitions have been identified as important potential

sources of comp. advantages for MNCs. This has also enhanced the role of IHRM to
meet the key strategic challenge of objectives.

ƒ Knowledge management is an important source of comp. advantage for MNCs,

where IHRM is the key partner and plays a central role.

 Major Issues in International HRM:

According to Hendry (1994), there are three main Issues in IHRM:

1. The management and development of expatriates- selection, training, compensation

and repatriation of expatriate failures.
2. The internationalization of management through out the organization (host country,
parent country and other third countries)
3. The need to internationalize the whole organization by creating a new corporate
culture reflecting the need for greater international experiences across the whole
organization, due to the increasing frequency of cross cultural interactions of doing
business at home as well as abroad mainly Cultural communication & gauge and
Language and communication

 Role of International HRM:

International human resource management is the basis of success of any global

multinational organization. International HRM enhances employee’s effectiveness to achieve
goals of the organization and meet the needs; to develop employees to assume more diverse
tasks, assignments, face challenging situations and better understand the cultural variations
across the nations.
IHRM department deals with heterogeneous functions and has to give additional focus on
various aspects, such as:

1. More involvement in the employee’s personal life.

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 2. Deal with different groups of employees i.e. PCN, HCN and TCN for which HR
policies and practices may differ. International HR managers have to
understand cultural differentiation in multicultural environment.
3. Manage external influences, i.e host government authorities, business and
other interest pressure and labour groups, etc.
4. Lay different emphasis on management training to deal diverse workface,
their orientation and to meet international environment
5. Provide guidance on taxation and compensation aspects.

 Limitations in IHRM:

Management is basically the principle based on local cultures, traditions, practices and
needs of the organizational growth. It is not universal for everywhere, specially in the field of
human resources management.
HRM methods and systems developed by one society cannot always be transferred and
applied to another.
HRM and industrial relations practices differ across countries as these have their historic
origin in countries.
Personnel management and industrial relations are embedded in societal rules, norms,
values, ideologies and no MNC can afford to ignore the influence of local culture.

 Approaches to Staffing

1. Ethnocentric: few foreign subsidiaries have any autonomy and strategic decisions
are made at headquarters. Key positions in domestic and foreign operations are held
by headquarters’ personnel only. Subsidiaries are managed by staff from the home
country (PCNs).

2. Polycentric: Subsidiary is treated as a distinct national entity with decision-making

autonomy. Here subsidiaries are managed by local nationals (HCNs). HCNs are
seldom promoted to positions at headquarters. PCNs are rarely transferred to
foreign subsidiary operations

3. Geocentric: A global approach to its operations, recognizing that each part

(subsidiaries and headquarters) makes a unique contribution. There is worldwide
integrated business; nationality is ignored in favor of ability

4. Regiocentric: It reflects the geographic strategy and structure of the MNE. Here the
organization utilizes a wider pool of managers but in a limited way. The staff may
move outside their countries but only within the particular geographic region.
Therefore, the regional managers may not be promoted to headquarters positions
but enjoy a degree of regional autonomy

Advanta Ethnocentric Polycentric Geocentric Regiocentric

ges

 Organizational  Language • develops • interaction

control and and other international between
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 coordination is barrier are executive teams executives
maintained and eliminated and internal pools
facilitated of labour • sensitivity to
 Hiring costs local
 Promising are reduced • overcomes conditions
managers are and no work federation (staffed by
given permit is drawback HCNs)
international required
• supports • way to
experience
 Continuity of cooperation and gradually
 PCN’s may be the managemen resource sharing move from a
best people for t improves, across units purely
the job because of since HNCs ethnocentric
special skills and stay longer or polycentric
experiences in positions approach to a
geocentric
 There is assurance  Government approach
that subsidiary policy may
will comply with dictate
company hiring of
objectives, HCN’s
policies etc
 Morale
among
HCN’s may
improve as
they see
career
potential

Disadvan  The promotional  Control and • Host governments • can produce

tages opportunities of coordination may utilize federalism at
HCN’s are limited of HQ may immigration a regional
be impeded controls in order to rather than a
 Adaptation to force HCN country basis
host country may  HCN’s have employment
take long time limited • improves
career • companies career
 PCNs may impose opportunitie required to prospects at
an inappropriate s outside the provide extensive the national
HQ style subsidiary documentation levels
 Compensation for  Hiring HCN’s • increased training
PCNs and HCN’s limits and relocation
may differ opportunitie costs
s for PCN’s compensation
to gain structure with

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 foreign standardized
experience international base
pay
 Hiring HCN’s
could • large numbers of
encourage a PCNs, TCNs, and
federation HCNs need to be
of national sent abroad
rather than
• requires longer
global status
lead time and
centralized control
of the staffing
process

 Reasons for International Assignments:

1. position filling

2. management development

3. organization development

 Types of International Assignments:

1. Short term up to 3months

a. take up to three months

b. usually for troubleshooting, project supervision, or a stopgap measure

2. Extended up to 1year

a. up to one year

b. may involve similar activities as that for short term assignments

3. Long term (traditional expatriate assignment ) 1 to 5 years

a. traditional expatriate assignment varying from one to five years

b. involving a clearly defined role in the receiving operation

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 Control Mechanisms

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