CHAPTER 1 INTRODUCTION TO INTERNATIONAL HUMAN RESOURCE MANAGEMENT

CHAPTER 1 INTRODUCTION TO INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Chapter Objectives • Define key IHRM terms • Review expatriate management evolution • Outline differences between domestic and international HRM • Discover the increasing complexity and potential challenges of current IHRM

Definition of HRM �HRM involves all management decisions and practices that directly affect the people who work for the organization. �“Human Resources” the people who work for the organization. �Human resource management is the development and implementation of systems in an organization for attracting, developing and retaining a highperforming workforce. (Maimunah, 2011)

HRM �HRM refers to those activities undertaken by an organization to utilize its human resources effectively. �Major Functions and Activities - Human resource planning - Staffing Recruitment - Selection - Placement - Performance appraisal - Training and development - Compensation and benefits - Industrial relations

� • • • � • • • Planning Meshing HR strategy with overall organization strategy Forecasting future personnel needs Gathering information – including process and outcome data from HR activities and job Legal Compliance Staffing, including EEO and discharge/downsizing Pay and benefits Employee rights Labor relations Privacy Staffing Recruiting Selection Career management Downsizing / discharge Reward Systems Pay – including base pay and incentives Employee benefits Employee Relations Employee rights and responsibilities Grievances and discipline Labor relations analysis � Several other areas may or may not be included in an organization’s HR department. They may be assigned to a different department or outsourced; we won’t be looking at these areas. � OSHA and safety (often a separate function, especially in industrial settings) � HRIS (Human resource information systems – often outsourced) � Payroll (sometimes moved to accounting, sometimes outsourced)

Definition of HRD �A set of systematic and planned activities designed by an organization to provide its members with the necessary skills to meet current and future job demands.

� A process of developing human expertise through training and development and organisational development for the purpose of improving performance (Swanson, 2001). � A system and process concerned with an organised series of learning activities, within specified time limits, designed to produce behavioural changes in the HR in such a way that it acquires desired level of competence for a present or future role. (Bhatia, Verma & Gary, 1994).

Definition of IHRM � Broadly cover all issues related to the management of people in an international context. �Covers a wide range of HR issues facing MNCs in different parts of their organizations. �Include comparative analyses of HRM in different countries. �Summarily, IHRM involves the same activities as demostic (e. g HRP, Staffing & etc). However, domestic HRM is involved with employees within only one national boundary.

Why International HRM �Increasing globalization, firms and employees in them moving all over the world �Major problems in international operations because of human resource management blunders �Hence need to understand HRM in a global perspective �The role of HR in International Operations �Managing a Multicultural Workforce �Developing Managerial Talent in a Global Business Environment

Three Approaches to IHRM �Cross-cultural management - Examine human behavior within organizations from an international perspective �Comparative HRM and Industrial Relations - Seeks to describe, compare and analyze HRM systems and IR in different countries �HRM in multinational firms - Explore how HRM is practiced in multinationals

Types of Organizations � 1. International Corporation – domestic firm that uses its existing capabilities to move into overseas markets – focus on a single foreign country and on managing relation between HQs and that country ( LOW global efficiency) - Become an expert in one culture (LOW local responsiveness) � 2. Multinational Corporation(MNC) - Firm with independent business units operating in multiple countries - Several subsidiaries operating as stand alone business units in multiple countries

� 3. Global Corporation - Firm that has integrated worldwide operations through a centralized home office - Views the world as a single market � 4. Transnational Corporation - Firm that attempts to balance local responsiveness and global scale via a network of specialized operating units - Understand worldwide business environment from a global perspective - Learn about many cultures

THE INTERNATIONALIZATION OF BUSINESS – the driving force �Increased travel �Rapid and extensive global communication �Rapid development and transfer of new technology �Free trade �Education �Migration of large numbers of people �Knowledge sharing �Pressure on cost �Search for new markets �Homogenization of cultures �E-commerce

Basic Terms in IHRM �National or Country Categories - Host Country where subsidiary is located - Home Country where the firm headquartered - ‘Other’ Country �Employees of an International Firm - Host Country Nationals (HCN) - Parent Country Nationals (PCN) - Third Country Nationals (TCN) - Expatriates

Host Country nationals (HCN) �Natives of the host country �A subsidiary

Parent Country Nationals (PCN) �Who are typically defined as citizens of the country of the HQs of the MNE and employed by the firm in the country of its HQs.

Third Country Nationals (TCN) �Natives of a country other than the home country or the host country �‘Others’ countries that may be the source of labor, finance, and other inputs.

Expatriates �Staffs are moved across national boundaries into various roles within the international firm’s foreign operations. �When PCNs are transferred (posted/assigned/relocated) to another country, to work in a foreign subsidiary or other type of operation (JV @ alliance) of the MNE for more than one year, they are generally referred to as expatriates/international assignees.

Advantage of Different Sources for Overseas Managers HOST COUNTRY HOME COUNTRY THIRD COUNTRY 1. Talent available 1. Less cost 2. Preference of host within company 1. Broad experience 2. Greater control 2. International -country outlook government 3. Company experience 3. Multilingualism 3. Knowledge of environment 4. Mobility 4. Language facility 5. Experience provided to corporate executives

INTERNATIONAL ORIENTATION �Types � Ethnocentric � Polycentric or Regiocentric � Geocentric

Ethnocentrism �Managers are most likely to use a home country standard as a reference in managing international activities �Centralized decision making and high control over international operations that are centered in the HQs �Likely to follow an international strategy of replicating home country systems, procedures and structure abroad �Extensive use of expatriates from HQ to establish and manage the subsidiary operations.

�all key management positions are filled by parent company nationals �Common practice in early stage of internationalization �Due to lacks qualified individuals the host country nationals �Need to maintain good communication with corporate HQ �May see this as the best way to maintain a unified corporate culture �May believe it is the best way to transfer core competencies to a foreign operation �Can lead to “cultural myopia” – failure to understand host country cultural differences that require different approaches to management & marketing

Polycentrism or regiocentrism �Polycentric – Requires host country nationals to be recruited to manage subsidiaries, while parent country nationals occupy key positions at corporate HQ �Extended to include a num. of similar countries in a region �HR practices tend to be decentralized and local subsidiaries tend to be much more likely to be left alone, managed by a local HR manager who will follow local HR practices �Eliminates language barriers and adjustment problem for expatriates �Less expensive �Compatible with a multi-domestic strategy �HR managers in the foreign subsidiaries tend to be local and relatively autonomous from HQ

�Disadvantages �Host country nationals have limited opportunities to gain experience outside their own country & can’t progress to senior positions -> resentment �Gap can form between host country managers & parent country – isolating HQ staff from various foreign subsidiaries �Lack of management transfers can lead to lack of integration -> a federation of largely independent national units with only nominal links to HQ �Difficult to transfer core competencies or realize experience curve & location economies

Geocentrism � Geocentric – seeks the best people for the job throughout the company, regardless of nationality � HR practices will include extensive use of expatriates and inpatriates with a broad global sharing of HR practices and adoption of the best practices � Enables firm to make the best use of its human resources � Enables the firm to build a cadre of international executives who are at home working in a number of cultures � Build a strong unifying corporate culture & informal management network – required for global & transnational strategies � Better able to create value from the pursuit of experience curve & location economies and from the multidirectional transfer of core competencies � Reduce cultural myopia & enhance local responsiveness � Compatible with both global & transnational strategies

�Disadvantages �Immigration laws can require the employment of host-country nationals �Expensive to implement – training & relocation costs �Need a compensation structure with a standardized international base pay level higher than national levels in most countries

A Model of IHRM

Differences between international and domestic HRM �More HR functions and activities - HR Deprt. must engage in a no. of activities that would not be necessary in a domestic environment. - The management of international assignees which includes such things as foreign taxes, work visas, and assistance with international relocations. - Intern. relocation & orientation involves: arranging for pre-departure training, providing immigration and travel details, housing, shopping, medical care, compensation and etc.

Differences between international and domestic HRM - Host govern. relations represent an important activity for a HR deprt. in developing countries where work permits and other important certs. are required. �A broader expertise and perspective -HR managers working in a domestic environment generally administer programs for a single national group of employees who are covered by a uniform C&B policy and taxed by one national govern. - knowledge about foreign countries, their employment laws and practice and cultural differences

Differences between international and domestic HRM - 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 & TCN employees. ) - 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 international and domestic HRM �More involvement in people’s lives, - A greater degree of involvement in employees’ personal lives is necessary for the selection, training and effective management of both PCN & TCN employees. - HR Deprt. needs to ensure the expatriate employees understands housing arrangements, health care and all aspects of compensation package provided for the assignment. - Many MNC have an ‘International HR Services’ section that coordinates administration of the above programs and provides services for assignment, coordinating home visit and final repatriation.

Differences between international and domestic HRM �More involvement in people’s lives, - Some govern. require the presentation of a marriage certs. before granting a visa to an accompanying spouse. - Domestic HR Deprt. involves with an employee’s family is limited and domestic assignment most of these matters either would not arise or would be primarily the responsibility of the employees rather than the HR Deprt.

Differences between international and domestic HRM �Changes as the workforce mix of expatriates and local varies. - Foreign operation mature, the emphases put on various HR activities change. - The need to change emphasis in HR operations as a foreign subsidiary matures is clearly a factor t hat would broaden the responsibilities of local HR activities such as HRP, staffing, T&D and C&B.

Differences between international and domestic HRM �Risk exposure - Human & financial consequences of failure in the international arena are more severe than in domestic business. - The direct cost (salary, training cost and etc) and indirect cost (loss of mkt. sahre) of failure to the parent firm may be as high as three times the domestic salary plus relocation expenses depending on currency exchange rates and location of assignment. - Other aspect of risk exposure that relevant IHRM is terrorism & political climate.

Differences between international and domestic HRM �A broader external influences - The major external factors that influence IHRM are the type of govern. , the state of economy and the generally accepted practices of doing business in each of the various host countries in which the multinational operates. - E. g host govern. can dictate hiring procedures. - Developed countries, labor is more expensive & better organised than in less-developed countries & govern. Requires compliance with guidelines on issues such as labour relations, taxation and S&H.

Differences between international and domestic HRM - In less developed countries labour is tends to be more cheaper and less organised and government regulation is less pervasive. - These factors shape the activities of the subsidiary HR manager.

Differences between HRM & IHRM

VARIABLES THAT MODERATE DIFFERENCES BETWEEN DOMESTIC HR & IHRM

Enduring Context of IHRM

Conclusion �As in present scenario the globalization is on top of its level and world has became a global village. �So managing such a diverse workforce is a big deal for the organizations that’s why the MNCs have focused on the IHRM.