Introduction to IHRM

Dr.Yogananthan.S
 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  Global competitive
insti-tutions and strategy
culture  Fit between corporate
 Host-country and HRM strategy
insti-tutions and
culture t al st Co
ra r
 Inter-
 Industry en te po
gi ra nationalizati
characteris m
n or s c te on strategy
ro t iss
-tics
n vi fac ue  Center-
 Competitiv E s
International subsidiary
e Human Resources relations
environmen Management
t
IHRM policies and
practices

 Planning  Employer  Appraisal

 Staffing /  Training and
 Compensation employe developmen
e t
relations
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
Managing Across Borders
 International
Global corporation
corporation
◦ Domestic
Firm that has
firmintegrated
that uses its
worldwide
existingoperations
capabilitiesthrough
to movea
into overseas
centralized home
markets.
office.
 Multinational corporation
Transnational corporation(MNC)
◦ Firm that
with attempts
independent
to balance
business
local
units
responsiveness
operating in multiple
and
countries.
global scale via a network of specialized operating units.
Figure 15–1 Types of Organizations
 Evolving Motivations: Changing Perspectives

High
Global Trans-
National

Global
Coordination
Integration

Multi-
International
Low National

Low High
National differentiation,
Responsiveness Irwin/McGraw-Hill
MNC’s STRATEGIC AND ORGANIZATIONAL TASK:
DEVELOPING MULTIPLE CAPABILITIES
NEED FOR GLOBAL
COORDINATION,
INTEGRATION TOYOTA

- DRIVEN BY SCALE
AND
TECHNOLOGY
- REINFORCED BY
GLOBAL
COMPETITION G.M
FIAT

- DRIVEN BY SCOPE NEED FOR NATIONAL

AND MARKETS DIFFERENTIATION,
RESPONSIVENESS
- REINFORCED BY
GOVERNMENTS Irwin/McGraw-Hill
Polycentric Geocentric Ethnocentric
organization organization organization
Decentralized Interdependence betweenCentralized
structure center and subsidiaries structure
Independently Globally integrated Strategy
managed but locally responsive determined
subsidiaries Local systems at the center
Systems reflect integrated with center Little adaptation
local conditions Collaboration between to local conditions
Little control from center and subsidiary Systems
the center determined
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.
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
(equity based)

expansion

Types of
outward
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
Convergence or Divergence?
 Large corporations’  Need to follow
preference for local HRM laws
consistent worldwide
systems  Development of
 Smaller companies’ unique techniques
desire for more and practices to
professional systems suit local cultural
and legal
requirements
Differences between Domestic HRM and IHRM
 More HR activities: taxation, culture orientation,
administrative services
 The need for a broader perspective: cater to
multiple needs
 More involvement in employees’ personal lives:
adjustment, spouses, children
 Changes in emphasis as the workforce mix of
expatriates and locals varies: fairness
 Risk exposure: expatriate failure, terrorism
 Broader external influences: government
regulations, ways of conduct

1–
18
Variables that Moderate Differences between
Domestic HR and IHRM

1–
19
Reasons for IHRM
Forces for Change

 Global competition:
 Growth in mergers, acquisitions and

alliances:
 Organization restructuring:
 Advances in technology and

telecommunication:

1–
21
Impacts on Multinational Management
 Need for flexibility:
 Local responsiveness:
 Knowledge sharing:
 Transfer of competence:
Managerial Responses
 Developing a global “mindset”:
 More weighting on informal control

mechanisms:
 Fostering horizontal communication:
 Using cross-border and virtual teams:
 Using international assignments:
Factors that Influence the Global Work Environment

1–
24
IHRM - a shift in thinking
Laurent (1986)

 Explicit recognition by parent org of the

existence of assumptions and values of home
& host cultures
 Explicit recognition by parent org –

ethnocentrism is neither good/bad, has

strengths and weaknesses
 Explicit recognition of subsidiaries’

preferences – which may be different

Copyright 2003-2006, Chris Chan 25

IHRM - a shift in thinking
Laurent (1986)

 Willingness to acknowledge cultural

difference – discuss and learn
 Genuine belief in creative and effective ways

of managing people through cross-cultural

training/learning

26
What does IHRM add into the Traditional
Framework of HRM?
 Types of employees
◦ Within and cross-cultural workforce diversity
◦ Coordination
◦ Communication
 Human resource activities
◦ Procurement
◦ Allocation
◦ Utilization of human resources
 Nation/country categories where firms
expand and operate
◦ Host country
◦ Parent country
◦ Third country
1–
27
A Model of IHRM

1–
28
Some Terms Defined
 Host Country National (HCN): Belongs to the
Country where the subsidiary is located
 Parent Country National (PCN): Belongs to the

Country where the firm has its headquarters

 Third Country Nationals (TCN): Belongs to any

other country and is employed by the firm

International Assignments Create Expatriates:

1–
30
Parent-country Nationals
Advantages
 Control and co-ordination by
HQ is maintained.
 Promising managers get
international experience.
 PCNs may be the best
people for the job.
 Assurance that the
subsidiary will comply with
company objectives
policies etc.
Disadvantages
 HCNs promotion
opportunities are limited.
 Adaptation to host country
may take a long time.
 PCNs may impose an
inappropriate HQ style.
 Compensation differences
between PCNs and HCNs
may cause problems.
Host-country Nationals
Advantages
 No problems with
language and culture.
 Reduced hiring costs.
 No work permits required.
 Continuity of management
improves since HCNs
stay longer in positions.
 Govt. policy may force
hiring of HCNs.
 Promotional opportunities
not limited - so higher
morale among HCNs.
Disadvantages
 HQ may have less control
over operations.
 HCNs may still have
limited career
opportunities outside the
subsidiary.
 Hiring HCNs limits
opportunities for PCNs to
gain overseas experience.
 Hiring HCNs may
encourage a federation of
disintegrated national
units rather than one
integrated global unit.
Third-country Nationals
Disadvantages
 Transfers must
Advantages
consider national
 Salary and
animosities.
compensation may be  Host government
lower than for PCNs. may resent TCNs as
 May be more familiar much as PCNs.
with host country  TCNs may not comply

than the PCNs. with HQ style of

management.
 TCNs may not want to
return after
assignment.
What is an expatriate?
 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
1–
34
Expatriate Selection Criteria

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© 2007 Thomson/South-Western. –
All rights reserved. 35
Causes of Expatriate Assignment Failure

• Family adjustment
• Lifestyle issues
• Work adjustment
• Bad selection
• Poor performance
• Other opportunities arise
• Business reasons
• Repatriation issues

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© 2007 Thomson/South-Western. –
All rights reserved. 36
Reference
 Janet Morrison, International Business,
chapter 9, PHI edition.