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Part I: Chapter Notes
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IHRM 7e Instructor’s Manual Page 1 of 86
Chapter 1: INTRODUCTION
Learning Objectives
● Define key terms in international human resource management (IHRM) and consider several
definitions of IHRM.
● Introduce the historically significant issue of expatriate assignment management and review the
evolution of these assignments to reflect increasing diversity with regard to what constitutes
international work and the type and length of international assignments.
● Outline the differences between domestic and international human resource management and
detail a model that summarizes the variables that moderate these differences.
● Understand the complexity of IHRM and the increasing challenges to existing IHRM practices and
current models, developing an increased awareness of the wide number of choices within IHRM
practices due to increased transparency and the faster and more detailed diffusion of these
practices across organizational units and firms.
Chapter Summary1
The purpose of this chapter is to provide an overview of the emerging field of international HRM by:
● Defining key terms in IHRM and considering several definitions of IHRM.
● Introducing the historically significant issue of expatriate assignment management and reviewing
the evolution of these assignments to reflect increasing diversity regarding what constitutes
international work and the type and length of international assignments.
● Outlining the differences between domestic and IHRM by looking at six factors:
1) more HR activities
2) the need for a broader perspective
3) more involvement in employees’ personal lives
4) changes in emphasis based on variances in the workforce mix of expatriates and locals
5) risk exposure
6) more external influences
and detailing a model which summarizes the variables that moderate these differences.
● Presenting the complexity of IHRM, the increasing potential for challenges to existing IHRM
practices and current models, and developing an increasing awareness of the wide number of
choices within IHRM practices due to increased transparency and the faster and more detailed
diffusion of these practices across organizational units and firms.
We conclude that the complexity from operating in different countries and employing different
national categories of employees is a key variable in differentiating between domestic and IHRM,
rather than any major differences between the HR activities performed. We also discuss four other
variables that moderate differences between domestic and international HRM:
1) the cultural environment
2) the industry (or industries) with which the multinational is primarily involved
1
Bullet points in the chapter summaries include important parts taken from the lecture, which are covered by
the PowerPoint materials provided to instructors.
IHRM 7e Instructor’s Manual Page 2 of 86
3) the extent to which a multinational relies on its home country’s domestic market
4) the attitudes of senior management. These five variables are shown in Figure 1.3. Finally, we
discuss a strategic HRM model applied in multinational enterprises (Figure 1.4), which draws
together several external and organizational factors that impact on IHRM strategy and
practice and in turn on MNE goals.
Links to Other Chapters
This introductory chapter provides the basis for all the other chapters. The definitions and
understanding of the differences between HRM and international HRM described herein are key to
understanding the other chapters of the book.
Discussion Questions
1. What are the main similarities and differences between domestic and IHRM?
This question is addressed in ‘Defining international HRM’ (pp. 2-3) and ‘Differences between
domestic and international HRM’ (pp. 4-8):
Similarities:
● HRM = ‘[...] those activities undertaken by an organization to utilize its human resources
effectively’ (p. 2), including at least: human resource planning, staffing (recruitment,
selection, placement), performance management, training and development, compensation
(remuneration) and benefits, and industrial relations (→similarities between domestic and
international HRM).
Differences:
● Domestic HRM involves employees working within only one national boundary.
● IHRM also includes aspects pertaining to the national or country categories involved in
international HRM activities (the host country where a subsidiary may be located, the parent
country where the firm is headquartered, and ‘other’ countries that may be the source of
labor, finance, and other inputs), as well as the three categories of employees of an
international firm (host country nationals, parent country nationals, and third country
nationals).
● In IHRM, staff are moved across national boundaries into various roles within the
international firm’s foreign operations (expatriates/international assignees).
● In IHRM, the complexity of operating in different countries and employing different national
categories of workers is a key variable that distinguishes domestic and international firms.
This complexity is due to six factors: more HR activities, the need for a broader perspective,
more involvement in employees’ personal lives, changes in emphasis because of variances in
the workforce mix of expatriates and locals, risk exposure, and broader external influences.
2. Define these terms: ‘International HRM’, ‘PCN’, ‘HCN’, and ‘TCN’.
This question is addressed in ‘Defining international HRM’ (pp. 2-4).
International HRM can be seen as (Figure 1.1 on p. 2 summarizes these three approaches):
1) Cross-cultural managent (p. 2)
2) The ‘[…] interplay between the three dimensions of human resource activities, types of
employees, and countries of operation’ (Morgan).
‘We define the field of IHRM broadly to cover all issues related to the management of people in
an international context. Hence, our definition of IHRM covers a wide range of human resource
issues facing MNCs in different parts of their organizations. Additionally, we include comparative
analyses of HRM in different countries’ (Stahl and Björkman, 2010); → This is the definition used
in this book on p. 4.
IHRM 7e Instructor’s Manual Page 3 of 86
These are the three categories of employees in an international firm:
o PCN – parent country national
o HCN – host country national
o TCN – third country national
For example, the US multinational IBM employs British citizens in its British operations (HCNs),
often sends US citizens (PCNs) to Asia-Pacific countries on assignment, and may send some of its
Singaporean employees on assignments to its Chinese operations (as TCNs). The nationality of
the employee is a major factor in determining the person’s ‘category', which in turn is frequently
a major driver of the employee’s employment contract and compensation.
3. Discuss two HR activities in which a multinational firm must engage, which would not be
required in a domestic environment.
The question refers to material found on p. 5 under ‘More HR activities’.
To operate in an international environment, a HR department must engage in several activities
that would not be necessary in a domestic environment. Examples of required international
activities are: international taxation, international relocation and orientation, administrative
services for expatriates, host-government relations, and language translation services.
● Expatriates are subject to international taxation, and often they have both domestic (i.e.
home country) and host country tax liabilities. Therefore, tax equalization policies must be
designed to ensure that there is no tax incentive or disincentive associated with any
particular international assignment. The administration of tax equalization policies is
complicated by the wide variations in tax laws across host countries and by the possible time
lag between the completion of an expatriate assignment and the settlement of domestic and
international tax liabilities. In recognition of these difficulties, many MNEs retain the services
of a major accounting firm for international taxation advice.
● Host government relations represent an important activity for the HR department in an
MNE, particularly in developing countries where work permits and other important
certificates are often more easily obtained when a personal relationship exists between the
relevant government officials and multinational managers. Maintaining such relationships
helps resolve potential problems that can be caused by ambiguous eligibility and/or
compliance criteria for documentation such as work permits. US-based multinationals,
however, must be careful in how they deal with relevant government officials, as payment
or payment-in-kind, such as dinners and gifts, may violate the US Foreign Corrupt Practices
Act (FCPA).
Further discussion on other activities can be found on pp. 5-8.
4. Why is a greater degree of involvement in employees’ personal lives inevitable in many
international HRM activities?
See ‘More involvement in employees’ personal lives’ on p. 6.
● More involvement in employees’ personal lives is necessary to select, train, and effectively
manage 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 such as cost-of-living allowances,
premiums, and taxes.
IHRM 7e Instructor’s Manual Page 4 of 86
● In the international setting, the HR department must be much more involved in order to provide
the level of support required. Consequently, it will need to know more about the employee’s
personal life. For example, some national governments require the presentation of a marriage
certificate before granting a visa for an accompanying spouse. Thus, marital status could become
an aspect of the selection process, regardless of the best intentions of the MNE to avoid using a
potentially discriminatory selection criterion.
5. Discuss at least two of the variables that moderate differences between domestic and
international HR practices.
See ‘Variables that moderate differences between domestic and international HRM’ on pp. 8-9 and
Figure 1.3.
The text names five variables that act as “moderators”; i.e, that diminish or accentuate the
differences between domestic and international HRM: complexity, the cultural environment,
industry type, extent of reliance of the multinational on its home country domestic market, and the
attitudes of senior management to international operations.
Complexity:
● Many firms from advanced economies, with limited experience in international business,
underestimate the complexities involved in successful international operations—particularly in
emerging economies. There is considerable evidence to suggest that business failures in the
international arena are often linked to the poor management of human resources.
Cultural environment:
● Possibility of employee culture shock.
● Recognition and appreciation of cultural differences is essential, because international business
involves the interaction and movement of people across national boundaries.
● In research, issues are: little agreement on either an exact definition of culture or on the
operationalization of this concept, as well as the emic-etic distinction (emic refers to culture-
specific aspects of concepts or behavior, and etic refers to culture-common aspects, i.e.
universality →divergence-convergence debate).
● Cultural awareness is essential for the HR manager at corporate headquarters as well as in the
host location. Coping with cultural differences, and recognizing how and when these differences
are relevant, is a constant challenge for international firms.
Industry type:
● This is of considerable importance because patterns of international competition vary widely
from one industry to another: multi-domestic versus global industry.
● Multi-domestic industry (competition in each country is essentially independent of competition
in other countries, e.g. retail, distribution, and insurance). The HR department’s role will most
likely be more domestic in structure and orientation. At times, there may be considerable
demand for international services from the HRM function.
● Global industry (a firm’s competitive position in one country is significantly influenced by its
position in other countries, e.g. commercial aircraft, semiconductors, and copiers).
Role of the HR department:
● an explicit recognition by the parent organization that its own peculiar ways of managing human
resources reflect some assumptions and values of its home culture;
IHRM 7e Instructor’s Manual Page 5 of 86
● an explicit recognition by the parent organization that its peculiar ways are neither universally
better nor worse than others, but are different and likely to exhibit strengths and weaknesses,
particularly abroad;
● an explicit recognition by the parent organization that its foreign subsidiaries may have other
preferred ways of managing people that are neither intrinsically better nor worse, but could
possibly be more effective locally;
● a willingness from headquarters to not only acknowledge cultural differences, but also to take
active steps in order to make them discussable and therefore usable;
● and building a genuine belief by all parties involved that more creative and effective ways of
managing people could be developed as a result of cross-cultural learning.
● → Changes that are required to internationalize the HR function have more to do with mindsets
than with behaviors.
Pages 8-14 consider these five aspects in detail.
References
Recent overviews on research in International Human Resource Management can be found in:
● Stahl, G., Björkman, I., and Morris, S. (Eds.) (2012). Handbook of Research in International
Human Resource Management. 2nd Ed. Cheltenham, UK: Edward Elgar Publishing.
● Brewster, C. & Mayrhofer, W. (Eds.) (2012). Handbook of Research in Comparative Human
Resource Management. Cheltenham, UK: Edward Elgar Publishing.
On convergence and divergence see:
● Festing, M. (2012). Strategic Human Resource Management in Germany: Evidence of
Convergence to the U.S. Model, the European Model, or a Distinctive National Model? In:
Academy of Management Perspectives, Vol 26, (2), 37-54.
IHRM 7e Instructor’s Manual Page 6 of 86
Chapter 2: THE CULTURAL CONTEXT OF IHRM
Learning Objectives
Chapter 1 observed that international HRM differs from nationally-oriented HRM predominantly in
the complexities that result from employees of various national origins working in different
countries. People who work in internationally operating companies, as well as customers, suppliers,
or representatives of government institutions in the host country, often face very different cultural
and institutional environments due to differing socialization experiences. In this chapter, we
systematically review the environment of international HRM decisions so that the complexity of
these decisions can be better understood and adequate solutions developed. This chapter is
designed to enable students to learn about the key findings of intercultural comparative research
on:
● Definitions of culture
● Cultural concepts
● Results of intercultural management studies such as Hofstede’s research and the GLOBE
study
● Reflections on cross-cultural management research
● Discussion of the development of cultures
These concepts are highly relevant to developing a more comprehensive understanding and
explanation of the complexity of international HRM.
Chapter Summary
In this chapter, we outline how the cultural environment may influence HRM. In summary it can be
concluded that an adequate understanding of the cultural context, as it impacts on the behavior of
an organization’s employees, is of critical importance. Thus, the results of cross-cultural comparative
research may provide valuable hints to managers about how to cope with employees from foreign
cultures. Furthermore, these research results can form the basis for the development of intercultural
training measures. These results could also be of great use to HRM in an international firm, because
they could assist in undertaking a structured analysis of the transferability of specific elements of a
parent firm’s existing HR policy to foreign subsidiaries. In this context, it would be conceivable to
decide whether incentive systems for groups or for individuals would be effective in a specific
culture.
Table 2.1 in the text (p. 32) summarizes these ideas about the cultural context and gives examples of
environmental differences which could lead to problems when MNEs attempt to introduce
worldwide standardized HRM practices. Within this context, it is important to recall the discussion
on the convergence and divergence of HRM and work practices, as mentioned in the first chapter.
Links to Other Chapters and Cases
This chapter provides important information on one of the key contextual issues for international
human resource management. The importance of the cultural environment has already been
introduced in Chapter 1 and will be addressed in many chapters again and linked to topics such as
the cultural adaptation process (Chapter 5), international performance management (Chapter 6),
and intercultural training (Chapter 7).
IHRM 7e Instructor’s Manual Page 7 of 86
Cases that provide the basis for a cultural discussion include Case 3 on transnational compensation,
where, for example, risk aversion (which could be linked to uncertainty avoidance) plays an
important role. A more general discussion on cultural values could be included in Case 7, which
examines balancing values between Scandinavia and India.
Discussion Questions
1. Define culture. How can culture be conceptionalized?
See ‘Definition of culture’ (p. 24) and ‘Schein’s concept of culture’ (pp. 23-24).
To date, there is no predominant consensus on the exact meaning of culture:
● ‘Culture consists of patterned ways of thinking, feeling, and reacting, acquired and
transmitted mainly by symbols, constituting the distinctive achievements of human groups
including their embodiments in artifacts; the essential core of culture consists of traditional
[…] ideas and especially their attached values…’ (Kluckhohn and Kroeber, 1950s).
● ‘[Culture is] mental programming’ or ‘software of the mind’ (Hofstede, 1991).
● Culture includes the customs of a community that are practiced by a majority and are based
on four basic elements: standardization of communication, thought, feeling, and behavior
(Hansen).
Culture can be conceptualized on various levels (Schein, 2004):
1. Artifacts or creations (conscious): visible organizational structures and processes; easily
measurable, but hard to interpret variables such as, for example, the economic growth of a
country or its political system.
2. Values (partly conscious and partly unconscious): values of a company or culture, found in
the intermediate level of consciousness; based on underlying assumptions; e.g., they are the
basis for national legislation or attitudes towards abortion. Hofstede’s study is at this level.
3. Underlying assumptions (invisible and unconscious): includes convictions, perceptions,
thoughts, and feelings concerning, for example, the nature of reality and the nature of truth,
time dimensions, the effect of spatial proximity and distance, the nature of being human,
types of human activity, the nature of human relationships through religions, the basic
understanding of democracy, and capitalist market organizations.
Influences from artifacts, through values to underlying assumptions, are much weaker than
those leading in the opposite direction, because the influence of underlying assumptions on
values and artifacts is stronger than vice-versa.
2. Outline Hofstede’s cross-cultural management study and discuss it accordingly.
See ‘Hofstede’s cross-cultural management study’ (pp. 26-33).
● It was the first major study in cross-cultural comparative research.
● It can be positioned on the values level (according to Schein).
Original study at IBM (1967-1973):
● N=116,000 questionnaires which were completed by IBM employees at all hierarchical levels
and with various qualifications.
● Four dimensions of country cultures were identified: power distance, uncertainty avoidance,
femininity vs. masculinity, and individualism vs. collectivism.
● These dimensions imply consequences for the structures of organizations.
Chinese Value Survey
● N=100 people from 23 countries.
IHRM 7e Instructor’s Manual Page 8 of 86
● The results reflected three dimensions similar to power distance, individualism vs.
collectivism, and masculinity vs. femininity and one new dimension: Confucianism dynamics,
which could not be related to the results of the original IBM study.
Dimension Definition Examples of Country Characteristics Major Difference
lies in…
Power The acceptance of High: acceptance of a Low: aspiration to equal power … how power
Distance members of a culture hierarchical organization distribution, demand for inequality is dealt
that power is not structure, in which every explanations for any instance of with
distributed equally in individual can occupy their place formalized power inequality
institutions expresses without any need for US, Anglo Saxon countries
the emotional justification
distance between Many South Asian countries,
employees and South America
superiors
Uncertainty Extent to which the Strong: strict beliefs and Weak: significance of practice … the reaction of
Avoidance members of a culture behavioral codes, no tolerance exceeds the significance of individuals to
feel threatened by for people and ideas that principles; high tolerance of time pressure or
uncertain, ambiguous deviate from these deviations uncertainties in
and/or unstructured Some Asian Cultures, e.g. Scandinavia the future
situations and try to Singapore, Hong Kong, German-
avoid them speaking countries
Femininit Based on the Masculine orientation: Feminine orientation: … the form of
vs. assumption that comprises the pursuit of preferences for life quality, social roles
Masculinity values can be financial success, heroism and a modesty and interpersonal attributed to
distinguished as more strong performance approach; relationships; role flexibility is gender by the
masculine or more role flexibility is less clear-cut more clear-cut relevant society
feminine German-speaking countries Scandinavia
Individualism Extent to which In more individualist cultures, More collective cultures have … the
vs. individual initiative there is merely a casual network closer, more clearly defined predominant
Collectivism and caring for oneself of relationships between systems of relationships. This self-sufficiency
and one’s nearest people. Each person is primarily applies both to extended among
relatives are preferred responsible for himself families as well as companies individuals in a
by a society as US, Anglo Saxon countries Many South Asian countries, society (private &
opposed to, for South America professional)
example, public
assistance or the
concept of extended
family
Confucianism Basic orientation in Long-term: great endurance Short-term: personal candor x…the attitude
or the life of people, and/or persistence in pursuing and stability, avoiding loss of towards time
Long-term which can be either goals, position of ranking based face, respect for social and (short-long; past-
Orientation more long-term or on status, adaptation of status obligations without the present-future)
short-term in nature traditions to modern conditions, consideration of costs, low
respect for social and status savings rates and low
obligations within certain limits, investment activity,
high savings rates and high expectations of quick profit,
investment activity, readiness to respect for traditions, and
subordinate oneself to a greetings, presents and
purpose, and the feeling of courtesies based on reciprocity
shame → present-oriented or past-
→ future-oriented, dynamic oriented, relatively static
Asian Countries US
Discussion (see pp. 32-33 ‘A reflection on the Hofstede study’)
Pros:
● Historical prominence—an important contribution to cross-cultural management research.
● Could be repeated at different points in time.
● Results could serve as guidelines for explaining behavior, at least in initial orientation.
Cons:
● Deterministic and universalistic concept of culture (see discussion question 6).
● Reductionist approach.
