Chapter Two Human Resource Environment

Chapter Two
Human Resource Environment

HRM environment
HRM environment …
• An HRM program functions in a complex environment comprising several
elements both inside and outside the firm. In order to have an effective
HR program, HR managers must give careful attention to all aspects of
the environment.
• Rapid changes are occurring within society and therefore in the
environment within which organizations operate. These changes present
challenges that require early solutions if an HR program is to be
successful and make its full contribution to the organization and to all its
members
Count…
• From the broadest perspective, HRM balances the needs of the
organization with the realities of the internal and external environments.
• Basic Questions that should be answered BY HRM managers
 How to improve an organization’s internal environment is one of the major
challenges confronting employers today?
 How can the internal environment be changed to improve the quality of work life?
Elements of an Organization’s Environment
• The environment of an organization consists of the conditions, circumstances,
and influences that affect the firm's ability to achieve its objectives.
• Every organization exists in an environment that has both
 external environment: - physical, technological, social, political, and economic.
It influence how HR functions will be performed
• internal environment:-
 The internal environment influences both HR policies and procedures and the individuals
who make up the workforce of the organization.
An Organization’s External and Internal Environment

HRM FUNCTIONS
 Planning
EXTERNAL  Staffing
ENVIRONMENT  EEO
 Physical  Training and
 Technological development
 Social Organizational  Performance
 Political Goals and appraisal
 Economic Strategies  Compensation
 Globalization benefits Employee INTERNAL
 Safety and Skills, Needs, ENVIRONMENT
health and attitudes  Employees
 Labor  Organizational
relations culture
 Structure

The External Environment
• It outside the firm and has a significant impact on

HRM policies and practices
• Economic conditions
• Legal requirements and
constraints
• Demographics
• Technology
• Globalization
General Economic Conditions
• Global economy
• Lower wage levels vs. quality and productivity
• Ethical issues and political considerations
• Domestic factors
• Move from manufacturing economy to service / information economy
• Mergers  duplication of functions  layoffs
• Supply and demand of labor influences price
• Supply and demand of company’s product, which determines available resources
Page
Sources:
Management Challenger
412 / Intro to HRM (2003); Cole, et al. (2003) Fall 2008
8
Legal Requirements and Constraints
• Government now an intermediary in the relationship between

employers and employees
• Legal requirements and constraints are usually a reflection of
social attitudes and opinions
Page
Management 412 / Intro to HRM Fall 2008
9
Demographics
• Supply of labor (number of people, skills, etc.)
• New skills needed, but are they present in workforce?
• Basic skills availability?
• Different needs of different groups in the population
• Increasing number of women in paid workforce
• Dual-earner families
• Family friendly benefits
• Aging population
Page
Fall 2008
10
Technology
• New jobs; old jobs vanish
• Need for new skills
• Need for continuous skills development
• Managing the HR function
• Data management
• Employee communications
Page
11
HRM in a Global Environment
• The environment in which organizations operate is rapidly becoming

a global one.
• Foreign countries can provide a business with new markets.
• Companies set up operations overseas because of lower labor costs.
• Technology makes it easier for companies to spread work around the
globe.
As companies in the
United States and
Britain cut software
jobs and outsource to
other countries in
order to drive down
costs, countries such
as India continue to
see employment rise.
HRM in a Global Environment
(continued)
• Global activities are simplified and encouraged by trade

agreements among nations.
• As these trends and arrangements encourage international
trade, they increase and change demands on human resource
management.
• Organizations need employees who understand the
customers and suppliers in foreign countries.
• Organizations need to understand the laws and
customs that apply to employees in other countries.
Employees in an International Workforce
• Parent-country national – employee who was born and works

in the country in which an organization’s headquarters is
located.
• Host-country national – employee who is a citizen of the
country (other than parent country) in which an organization
operates a facility.
• Third-country national – employee who is a citizen of a
country that is neither the parent country nor the host country
of the employer.
Employees in an International Workforce
(continued)
• When organizations operate overseas, they hire a combination

of parent-country nationals, host-country nationals, or third-
country nationals.
• Expatriates – Expatriate A citizen of one country who is
working in a second country and employed by an organization
headquartered in the ﬁrst country.
Levels of Global Participation
Employers in the Global Marketplace
• International organization – an organization that sets up one

or a few facilities in one or a few foreign countries.
• Multinational company – an organization that builds facilities
in a number of different countries in an effort to minimize
production and distribution costs.
• Global organization – an organization that chooses to locate a
facility based on the ability to effectively, efficiently, and
flexibly produce a product or service using cultural differences
as an advantage.
Culture
• Culture – a community’s set of shared assumptions about how
the world works and what ideals are worth striving for.
• Culture can greatly affect a country’s laws.
• Culture influences what people value, so it affects people’s
economic systems and efforts to invest in education.
• Culture often determines the effectiveness of various HRM
practices.
Culture (continued)
• Cultural characteristics influence the ways

members of an organization behave toward one
another as well as their attitudes toward various
HRM practices.
• Cultures strongly influence the appropriateness
of HRM practices.
• Cultural differences can affect how people
communicate and how they coordinate their
activities.
In Taiwan, a country that is high in
collectivism, coworkers consider
themselves more as group members
instead of individuals.
Culture (continued)
• Organizations must prepare managers to recognize and handle
cultural differences.
• Recruit managers with knowledge of other cultures
• Provide training
• For expatriate assignments, organizations may need to conduct
an extensive selection process to identify individuals who can
adapt to new environments.
Economic System
• The economic system provides many of the incentives or
disincentives for developing the value of the labor force.
• In developed countries with great wealth, labor costs are
relatively high. This impacts compensation and staffing
practices.
• Income tax differences between countries make pay structures
more complicated when they cross national boundaries.
Political-Legal System
• The country’s laws often dictate the requirements for HRM
practices: training, compensation, hiring, firing, and layoffs.
• An organization that expands internationally must gain
expertise in the host country’s legal requirements and ways of
dealing with its legal system.
• Organizations will hire one or more host- country nationals to
help in the process.
Human Resource Planning in a
Global Economy
• Human resource planning involves decisions
about where and how many employees are needed
for each international facility.
• Decisions about where to locate include
considerations such as the cost and availability of
qualified workers.
• These considerations must be weighed against
financial and operational requirements.
• Other location decisions involve outsourcing.
Cross-Cultural Preparation
• This is training to prepare employees and their family
members for an assignment in a foreign country.
• The training covers all three phases of an international
assignment:
1. Preparation for departure
2. The assignment itself
3. Preparation for the return home

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Chapter Two Human Resource Environment

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Chapter Two

Human Resource Environment

• It outside the firm and has a significant impact on

• Government now an intermediary in the relationship between

• The environment in which organizations operate is rapidly becoming

• Global activities are simplified and encouraged by trade

• Parent-country national – employee who was born and works

• When organizations operate overseas, they hire a combination

• International organization – an organization that sets up one

• Cultural characteristics influence the ways

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