UNIT -1

Introduction

Importance of International Human Resource Management

International business is dynamic. Business is crossing borders. Globalization is gaining
momentum. Markets are no longer protected from foreign competition. Markets are now open
for competition from both domestic and foreign firms. A large proportion of workforce are
located in other countries away from their homes and home countries.

For example, Ford Motor Company has half its employees outside the United States, Philips
has three-fourths of its employees working outside the Netherlands and more than half of
Ericsson’s workforce is located outside Sweden.

Issues of managing business are becoming more and more complex in the same pace as
globalization is taking placing. The unusual level of foreign competition in both domestic and
foreign markets is forcing businesses to find and retain the competitive advantage. Finding and
nurturing the suitable and capable human resources in the context of high competition at both
domestic and international levels is high on the list of priorities of the top managements.
Quality human resources are a must for implementing global competitive strategies. Firms
expanding into international markets are put under additional pressure to manage their limited
resources and for such firms managing human resources is more essential than any other firm.
Any problem is either created by people or must be solved by people. Having right people in
the right place at the right time is key to a company’s international growth.

Approaches to International Human Resource Management

Cross-cultural Management: One approach stresses on cross-cultural management. It
examines human behavior within organizations from an international perspective. Culture
which varies from country to country at least on a few dimensions like family, work ethics,
business practices etc. It makes all the difference.
Comparative Industrial Relations: The second approach, which was developed from
comparative industrial relations describes, compares and analyses HRM systems in various
countries. It is a study of countries, their work patterns and managerial practices.

Management of Multinational Firms: The third approach focuses on aspects of HRM in

multinational firms. In this the focus is on the management of multinational firms having
operations in different countries and finding universal principles that apply to the operations of
the multinationals across the world.

What is International HRM?

Let us first examine what activities constitute HRM. All those activities undertaken by an
organization to utilize its human resources effectively makes HRM. Those activities include:

 Human Resource Planning

 Staffing
 Performance management
 Training and development
 Compensation and benefits
 Labor relations
The above activities will have a change whenever a firm or its HRM goes international.

Three Dimensions of International HRM activities:

1. Procurement, allocation, and utilization of human resources. These are listed under HRM.

2. Three national or country categories involved in international HRM activities are:

 the host country where a subsidiary may be located,
 the home country where the firm is headquartered, and,
 the ‘other’ countries that may be source of labor or finance.

3. The three types of employees of an international firm:

 the host country nationals (HCNs),
 the parent-country nationals (PCNs), and
 the third country nationals ( TCNs).

Thus, for example, IBM employs Australian citizens (HCNs) in its Australian operations, often
sends US citizens(HCNs) to Asia-Pacific countries on assignment, and may send some of its
Singaporean employees on an assignment to its Japanese Operations (as TCNs).

Model of International HRM

International HRM has been defined by Morgan as the interplay among three dimensions
namely human resource activities, types of employees, and countries of operation.

Activities of HRM in international scene are the same as those of domestic HRM except that in
the former the activities are done in home country.
The relevant issues that arise out of operating in different countries and employing different
national categories of workers is a key variable that differentiates domestic and international
HRM rather than anything else. Failures of several international firms are linked to the poor
international human resource management. Study conducted by Desatnick and Bennet on large
US multinational firm confirm the above statement.

Now there is a tendency that domestic firms are taking the models offered by international
HRM to manage diversity of workforce. But it needs some modification while applying
principles of managing domestic workforce diversity to International HRM.

International HRM vis-à-vis Domestic HRM: Core Concepts

More HR Activities
International environment requires the HR department to undertake more HR activities than
those in domestic HR. They are: international taxation, international relocation and orientation,
administrative services for expatriates, host government relations, and language translation
services.

Tax Laws
Expatriates, the nationals working in different country other than their native land are subject to
laws of the both the nations, both home and host countries. The HR department should design
the remuneration so as to equalize the impact of taxes in such a way that there is neither tax
incentive or disincentive. Tax laws are widely different in different countries. Tax liabilities in
many cases arise after the foreign assignment is finished. To avoid tax problems, generally the
services of an accounting firm are taken.
International relocation and orientation
International relocation and orientation involves activities like imparting of pre-departure
training; providing of immigration and travel details; providing housing, shopping, medical
care, recreation, and schooling information; and finalizing compensation details such as
delivery of salary abroad, determination of various international allowances, and taxation
treatment.
The above issues may give rise to problems if considerable time and care are not given on
them.

Administrative Services
A multinational firm also has to provide administrative services for expatriates in the host
country in which it operates.
The policies and procedures with regard to these services are not always clear cut and may
conflict with local countries. An ethical and legal practice in one country is an unethical and
unacceptable practice in another.
For example, AIDS test in one country is a must in one country but the same is unacceptable for
an employee of another country.
These issues must be resolved by the HR function. Such issues add complexity to the provision
of services to the employee under relocation.

Host –Government Relations

HR department should take care of relationship with host government employees since
particularly in developing nations work permits and other certificates are more easily obtained
when a personal relationship exists between relevant government employees and multinational
managers.

Provision of Language Translation Services

Provision of language translation services for internal and external correspondence is an
additional international HR activity. It is, if necessary, expanded to provide translation service
to all foreign operation departments within the multinational.

More Involvement in Employees’ Personal Lives

The HR professional or HR department has to see that the expatriate employee understands
housing arrangements, health care and all aspects of the compensation package provided for
the assignment ( like cost-of- living allowances, premiums, taxes etc.) Many multinational have
an ‘ International HR Services’ section that coordinates administration of the above programs
and provides services for PCNs and TCNs such as handling their banking, investments, home
rental while on assignment, coordinating home visits, and final repatriation.

In the domestic service, the involvement of HR with employee’s family is limited. In the
international setting, the HR department should know the personal life and needs of the
employee in order to give necessary support.
For example, in the cases of requirement of marriage certificate for issue of visa for an
employee being sent on foreign assignment, the HR department will do advise the bachelors
asto how they can remain in the selection process for assignment. Apart from providing housing
and schooling in the assignment location, the HR department needs to care of the left-behind
children with regard to their schooling and boarding. In areas of remote location, the HR
department should arrange for recreation facilities also. Generally in domestic setting, all these
are the responsibility of employee himself. Changes in Emphasis as the workforce Mix of PCNs
and HCNs varies.

Over a period of time as the foreign operations grow and evolve, the emphasis on certain
activities change. More local trained people become available. Resources previously allotted on
such activities as expatriate taxation, relocation etc will be transferred to activities such as
local staff selection, training, management development etc. It is how the responsibilities and
activities of local HR become broader.

Risk Exposure
An employee sent on foreign assignment may fail and come back to home country. Costs of
such failure are three times higher than those in domestic service. Such failure also causes
indirect costs like loss of market share and damage to customer relationships. Terrorist
problems should also be properly assessed and safety should be planned by HR function.
Emergency evacuation plans should be devised by HR.

More External Influences

Major external factors like type of government, state of the economy and accepted practices of
doing business in host country influence the international HRM of multinational firms. For
example, a host country can dictate hiring terms. In Malaysia, the local Malays should be
adequately employed and periodical returns should be sent on employment patterns of different
ethnic groups.

In developed countries, the labor is expensive and certain legal requirements have to be met. In
less developed countries, the labor is cheap and employment regulations are relatively liberal
and consequently the burden on HR management is less. The subsidiary HR manager should
also learn the local business conventions and code of conduct like in the areas of gift-giving etc.

International HRM vis-à-vis Domestic HRM: Moderating Variables

1. Cultural Environment

Culture is a Shaping Process Members of a group or a society share a distinct way of life with
common values, attitudes, and behaviors that are passed over time from generation to
generation in a gradual, yet dynamic process. A Person is Not Born With a Certain Attitude He
acquires it through socialization process and hands it down to the next generation.
Culture is so invisible, but affective a process that one is not always aware of its effect on
values, attitudes, and behaviors. By reading a novel or story about a group of men of a
particular culture, the differences can not be understood.

The differences of culture can be better appreciated only when one directly deals with them in
real life- like living with them or interacting with them. This is called ‘culture shock’ which is
phenomenon experienced by people moving across different cultures. The new environment
requires many adjustments in a relatively short period of time, since it challenges people’s
established thinking pattern to such an extent that their identity especially in terms of
nationality, comes into question. People experience shock reaction to new cultural experiences.
This is because people misunderstand or do not recognize important cues.

Culture shock can lead to negative feelings about the host country and its people and desire to
return home. International business involves the interaction and movement of people across
national boundaries.

Awareness of cultural differences is essential for those going out on foreign assignment as well
as for those managing the HR function. One issue of cross-cultural understanding is that
relating to distinction between emic and etic aspects. Emic is about culture-specific aspects of
concepts or behavior. Etic is about culture-common aspects. Etic approach led to convergence
theory. Etic approach is based on the assumption that the principles and practices of
management are universal and hence applicable to every land. Local differences should be
changed to meet the universal practices.

Emic approach led to divergence theory. Principles and practices are not universal in that they
are divergent and hence local differences should be allowed. Etic assumptions led to the
erroneous prediction that Japan would fall behind in industrial performance unless it adapts
itself to the US practices which were thought to be universal. Appreciation of cultural diversity
as assumed in emic or divergence approach is as necessary as the appreciation of universality of
certain principles or cultural commonalities as in etic or convergence approach.

Importance of Cultural Awareness

It is now generally recognized that culturally insensitive attitudes and behaviors stemming from
ignorance or from misguided belief ( ‘ my way is the best’ or ‘what works at home will work
here’) are not only improper but cause painful business failures. Hence HR managers and both
headquarters and host country should be aware of the cultural differences. Activities such as
hiring, promoting, rewarding and dismissal will be determined by the practices of the host
country. Generally a local person is appointed as HR manager who should report to the boss
relocated from headquarters. In such cases what the local HR manager does may not agreeable
to the boss from the headquarters.

Suppose a local HR manager is Thailand has appointed all his relatives in the office; it is a folly
of favoritism or nepotism as per boss’ home country practices, but it is a responsibility of local
HR manager to help his relatives.

Another example of bringing home country ideas to host country and its subsequent
repercussions or failures is related to the banning of chewing of betel in Papua of New Guinea.
In a multinational company operating in New Guinea has noticed that more accidents were
taking place among drivers operating heavy earth moving equipment.

The expatriate manger linking accidents to use of stimulants like betel-chewing, has banned it.
But in another move to reduce accidents, free coffee was provided at loading points and
the drivers were required to alight from the vehicles at these locations to drink it. What the
expatriates did not realize was that betel nut like culturally acceptable coffee was a stimulant
but the drivers chew betel nut to cover the smell that comes out of drink of alcohol. Out of
incorrect understanding, they banned a wrong thing in an attempt to correct a situation but it did
not help. Cultural differences cause adjustment and handling problems to both expatriates and
families. The HR managers should help the expatriates prepare for these differences.

2. Industry Type
Industries are of two types:
 Multi-domestic Industry
 Global Industry.

Multi-domestic industry is one in which competition in each country in independent of the

competition in other countries like retailing, distribution, insurance etc.

Global industry is one in which firm’s competition in one country is significantly influenced
by its position in other countries like those of commercial aircraft, semiconductors, and copiers.

Global industry competes at global level. A firm of a global industry integrates its activities on
a worldwide basis to capture the linkages among the countries.
In multi-domestic industry, the international firm converts its global strategies into domestic
strategies. In a multi-domestic industry, the HRM function is primarily domestic in structure
and orientation.
The HR function of a multinational company in a global industry should be structured to deliver
international competitive advantage.
A truly international conception of human resource management would require the following
steps:

1. The parent organization should recognize that their own assumptions and values of
home country are reflected in the way they manage human resources in host country.
2. The parent should recognize that their peculiar ways are not universally applicable
though such ways have their strengths and weaknesses.
3. The parent organization should also recognize that their foreign subsidiaries may have
other preferred ways of managing people, which may neither better or worse, but may
be effective locally.
4. The cultural differences should be made discussable and usable.
5. All should believe that cross-cultural learning will produce effective ways of managing
people.

By the above steps, a multinational company will be able to work through the difficulties
inherent in such a strategy.

3. Reliance of The Multinational on Its Home-Country Domestic Market

HR practices are influenced by the extent to which the multinational depends on the home
country domestic market. Global market perspective is seen as dominant in the operations
of the many multinationals. For many firms, the small size of their home market is the primary
reason for exploring international markets. Many US companies because of the larger size of
their home country have expanded relatively less into foreign markets as compared to those of
Switzerland, Canada, Britain, and Sweden.

4. Attitudes of Senior Management to International Operations

The last but not the least of variables that moderate the differences between international and
domestic HRM is attitudes of the senior management.

The real change should occur in the attitudes of the senior management so as to truly
internationalize the HR function. If senior management is not strongly oriented towards
internationalization, the importance of the international operations may be de-emphasized. Such
managements may also erroneously assume that what is practiced in the domestic HRM is
transferable to international HRM. It causes problems and also business failures. Now the
challenge for HR manager is to work with top management to global mindset.

Expanding the Role of HRM in International Firms

One study by Bhat et al assessed how and whether HR department and staff are involved in
planning at the strategic and corporate levels.

The study concluded that HR involvement at the corporate level tended to informal, limited in
scope and heavily dependent on the competence and personal characteristics of the senior HR
manager. The HR manager played a major role separate from the functional area. Staffing was
the main area in which HR manager was involved, strategy formulation; other traditional HR
areas ( e.g. compensation and evaluation of manager performance) were viewed as general
management concerns and not primarily HR related.

At SBU ( strategic business unit- is a single or group of products or a single or group of

markets) , the HR department was more involved in strategic planning; its emphasis was on
how HR staff could help implement a strategy.

HR staff should be globally oriented and a global perspective of HR function through a broader
view of issues enables the development of more effective corporate policies.

The need for a global perspective applies to both the individual HR manager and HR
department. Towards this end, the HR managers should be transferred from headquarters to
international operations, not into subsidiary HR departments but into other line positions that
will broaden their perspectives. Moving HR staff from the subsidiaries into headquarters is
another way of encouraging headquarters HR staff to appreciate the international operations of
the firm and to develop the policies and activities to support staff throughout the entire global
network. Wherever companies can not afford transfer of staff to international operations of the
firm, other ways like an annual visit to key foreign subsidiaries. Larger multinational schedule
frequent meetings of corporate and subsidiary HR managers as a way to foster corporate
identity and to ensure greater consistency in global HR practices.
But in one survey ( Reynold’s survey of thirty five major US multinationals) it was found that
HR professionals with international experience were typically narrowly focused on expatriate
compensation. An expanded view of the role of HRM in international operations is required.
One Caution: Always churn in your mind the concepts and apply them over the latest events
reported in Economic Times or Business Standard ! If done so the registration of the awareness
on your mind will be fairly permanent and help you answer examination questions better.

Questions

1. Is the study of International HRM for a Management student? How?

2. International HRM looks very vast? How can one study it?
3. What constitutes International Human Resource Management?
4. What are the two important activities of international HR that are different from
domestic HR?
5. Why is a greater degree of involvement in employee’s personal lives inevitable in many
international HRM activities?
6. How does the type of industry impact the focus of international HR?
7. What is the importance of cultural awareness? Substantiate with recent events.
8. Is too much dependence on home market leads to neglect of international opportunities?
9. Is the role of international HR expanding from staffing to higher order planning?
10. What factors influence level, seriousness and extent of HR activities?
11. How does international growth determine the level of involvement of HR?
12. What are the attitudes of the top managements of MNEs with regard to who should sit
where in managing international operations?
13. What are the typical stages of international and how they determine the level of
involvement of HR activities?
14. How human resources are allocated in international human resource management?
15. What activities in the ‘International Human Resource Management’ are over and above the
domestic HRM? How is it different from the within-the-nation practice of HRM?
16. Familiarize you with the extra HR activities that are incremental to domestic HRM.
17. Why broader perspective is necessary for International HRM?
18. How employees personal or family lives are a focus in Internal HRM unlike domestic HRM?
19. What are different ways of workforce mix of expatriates and locals?
20. Does risk involved in International business affect HRM?

21. What are the external influences that impact on International HRM?
22. How an organization grows from domestic operations to international level operations
and how it impacts the HR function?
23 What are the stages that an organization passes through while growing from local
operations to international operations?

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