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TOPIC 1 Introduction To International HRM
TOPIC 1 Introduction To International HRM
INTERNATIONAL
HUMAN RESOURCE
MANAGEMENT
CHAPTER OBJECTIVES
Before we can offer a definition of IHRM, we should first define the general
field of HRM.
Typically, HRM refers to those activities undertaken by an organisation to
effectively utilize its human resources (HR).
These activities would include at least the following:
1. HR Planning
2. Staffing (recruitment, selection, placement)
3. Performance management
4. Training and development
5. Compensation (remuneration) and benefits
6. Industrial relations
DEFINING IHRM
The term ‘inpatriate’ is to signify the transfer of subsidiary staff into the
parent-country (headquarters) operations.
Host-Country Nationals (HCNs) only become inpatriates when they are
transferred into the parent-country operations as expatriates.
WHAT IS AN EXPATRIATE?
1. More HR activities
Language translation services
Provision of language translation services for internal
and external correspondence is an additional
international activity for the HR department.
If the HR department is the major user of language
translation service, the role of this translation group is
often expanded to provide translation services to all
foreign operation departments within the MNE.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
2. The need for a broader perspective
HR managers working in a domestic environment generally
administer programs for a single national group of employees
who are covered by a uniform compensation policy and taxed
by one national government.
Because HR managers working in an international
environment face the problem of designing and administering
programs for more than one national group of employees (e.g
PCN, HCN, and TCN employees who may work together),
they need to take a broader view of issues.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
2. The need for a broader perspective
For example, a broader, more international perspective on
expatriate benefits would endorse the view that all expatriate
employees, regardless of nationality, should receive a foreign
service or expatriate premium when working in a foreign
location.
Yet some MNEs that routinely pay such premiums to their
PCN employees on overseas assignment are reluctant to pay
premiums to foreign nationals assigned to the home country
of the firm.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Such a policy confirms the traditional perception of
may HCN and TCN employees that PCN employees
(particularly US and European PCNs) are given
preferential treatment).
Complex equity issues arise when employees of
various nationalities work together and the resolution
of these issues remains one of the major challenges
in the IHRM field.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
3. More involvement in employees’ personal lives
A greater degree of involvement in employees’ personal lives
is necessary for the selection, training, and effective
management of both PCN and TCN employees.
The HR department or HR professional needs to ensure that
the expatriate employee understands housing arrangements,
health care, and all aspects of the compensation package
provided for the assignment (cost-of-living, allowances,
taxes, and so on).
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Many MNEs have an ‘International HR Services’
section that coordinates administration of the above
programs and provides services for PCNs and TCNs,
such as:
-providing advice and information on matters
relating to banking, investments, home rental while
on assignment,
-coordinating home visits and
-final repatriation.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Apart from providing suitable housing and schooling
in the assignment location, the HR department may
also need to assist children placed at boarding in the
home country.
In more remote assignment locations, the HR
department may be required to develop, and even
run, recreational programs.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
4. Changes in emphasis as the workforce mix of
expatriates and locals varies
As foreign operations mature, the emphasis put on various
HR activities change.
For example, as the need for PCNs and TCNs declines and
more trained locals become available, resources previously
allocated to areas such as expatriate taxation, relocation, and
orientation are transferred to activities such as local staff
selection, training, and management development.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
5. Risk exposure
Frequently the human and financial consequences of
failure in the international arena are more severe
than in domestic business.
For example, expatriate failure (the premature return
of an expatriate from an international assignment)
and underperformance while on international
assignment is a potentially high-cost problem for
MNEs.
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Attitude of senior
management
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
1. The cultural environment
There are many definitions of culture, but the term is usually
used to describe a shaping process over time.
This process generates relative stability, reflecting a shared
knowledge structure that attenuates (i.e reduces) variability in
values, behavioral norms, and patterns of behavior.
Anyone travelling abroad, either as a tourist or on business,
experiences situations that demonstrate cultural differences in
language, food, dress, hygiene, and attitudes to time.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
1. The cultural environment
While traveler can perceive these differences as novel, even
enjoyable, for people required to live and work in a new
country, such differences can prove difficult.
They may experience culture shock –a phenomenon
experienced by people who move across cultures.
The new environment requires many adjustments in a
relatively short period of time.
Culture shock can lead to negative feelings about the host
country and its people and a longing to return home.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Cultural awareness and the role of the international HR
manager
It is generally recognized that culturally insensitive attitudes
and behaviors stemming form ignorance or from misguided
beliefs (”My way is best”, or “What works at home will work
here”) are not only inappropriate but can all too often
contribute to international business failure.
Therefore, an awareness of cultural differences is essential for
the HR manager at corporate headquarters as well as in the
host location.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Activities such as hiring, promoting, rewarding, and dismissal will
be determined by the legal context and practices of the host country
and are usually based on a value system relevant to that country’s
culture.
A firm may decide to head up a new overseas operation with an
expatriate general manger but appoint a local national as the HR
department manager to ensure that they have a person who is
familiar with the host country’s HR practices.
Helping to prepare assignees and their families for working and
living in a new cultural environment has become a key activity for
HR departments in those MNEs that appreciate the impact that the
cultural environment can have on staff performance and well-
being.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
2. The industry with which the multinational is primarily involved
Porter suggests that the industry in which a MNE is involved is of
considerable importance because patterns of international competition
vary widely from one industry to another.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Multi-domestic Industry vs Global Industry
Multi-domestic Industry
is one in which competition in each country is essentially
independent of competition in other countries.
Traditional examples include retailing, distribution, and
insurance.
Global Industry
Is one in which a firm’s competitive position in one country is
significantly influenced by its position in other countries.
Examples include commercial aircraft, semiconductor, etc.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
Multi-domestic Industry vs Global Industry
If the firm is in a multi-domestic industry, the role of the HR
department will most likely be more domestic in structure
and orientation.
The main role for the HRM function would be to support the
primary activities of the firm in each domestic market to
achieve a competitive advantage through either
cost/efficiency or product/service differentiation.
If the multinational is in a global industry, it would require a
HRM function structured to deliver the international support
required by the primary activities of the MNE.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
3. The extent of reliance of the multinational on its home-
country domestic market
For many firms, a small home market is one of the key
drivers for seeking new international markets.
4. The attitudes of senior management to international
operations
It is likely that, if senior management does not have a strong
international orientation, the importance of international
operations may be underemphasized (possibly even ignored)
in terms of corporate goals and objectives.
VARIABLES THAT MODERATE
DIFFERENCES BETWEEN DOMESTIC
AND INTERNATIONAL HUMAN
RESOURCE MANAGEMENT
In such situations, managers may tend to focus on
domestic issues and minimize differences between
international and domestic environments.
The challenge for the corporate HR manager who
wishes to contribute to the internationalization of
their firm is to work with top management in
fostering the desired ‘global mindset’.
APPLYING A STRATEGIC VIEW OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
A broader or more strategic view of IHRM is
required to better explain the complexity and
challenges of managing IHRM issues.
An example of a theoretical framework that has been
derived from a strategic approach using a multiple
methodological approach is that of De Cieri and
Dowling.
Their framework is depicted in Figure 1.4 on next
slide.
APPLYING A STRATEGIC VIEW OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
External Factors
-PESTLE
Figure 1.4 A framework of SHRM in MNEs
-Organisational links
with other MNEs and
with national governments
-Asymmetric events
-Environmental dynamics
MNE Performance
Organisational Factors HR Function -Financial performance
-MNE balance of global -Global corporate HR role -Social performance
Integration and local HR practices -Enterprise resilience
Responsiveness -Crisis management and
-MNE structure coordination
-Firm size and maturity
-MNE strategy
-Corporate governance
-Headquarters’ international
orientation
-MNE culture
APPLYING A STRATEGIC VIEW OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
Research in countries undergoing significant economic
transformation, such as China, indicates that the HR function
has been substantially influenced by the changing external
environment.
In the twenty-first century, the context for international
business also reflects heightened concerns about security,
risk, and volatility in global markets.
In particular, terrorism has been identified by several
International Business scholars as an important concern since
the unexpected terrorist attacks in New York in September
2001.
APPLYING A STRATEGIC VIEW OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
Asymmetric events have been described by Gray as
threats that our political, strategic, and military
cultures regard as unusual.
Asymmetric events are not only difficult to deal with
when they occur, they are difficult to plan for,
recognize, and respond to with specific planning
process and training.
The influence of external factors on MNEs involves
complex environmental dynamics.
APPLYING A STRATEGIC VIEW OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
HR managers may be required to play important
roles in corporate governance, such as the design,
implementation, and maintenance of corporate codes
of conduct.
Organisational culture, which is defined by Kidger
as the “sense of common identity and purpose
across the whole organisation”, and is the final
organizational factor included in the framework.
THE CHANGING CONTEXT OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
The combination of appropriate people and HR practices has
been a constant critical success factor in international
business ventures.
For example, the following quotation is taken from a detailed
case study of a large US multinational, where the authors,
Desatnick and Bennett, concluded:
“The primary causes of failure in multinational ventures stem
from a lack of understanding of the essential differences in
managing HR, at all levels, in foreign environments.
THE CHANGING CONTEXT OF
INTERNATIONAL HUMAN RESOURCE
MANAGEMENT (IHRM)
“Certain management philosophies and techniques have
proved successful in the domestic environment: their
application in a foreign environment too often leads to
frustration, failure, and under achievement.
These ‘human’ considerations are as important as the
financial and marketing criteria upon which so many
decisions to undertake multinational ventures depend”.
This study was reported in 1978 but many international
managers today would concur with the sentiments expressed
in this quote.