INTERNATIONAL HUMAN

RESOURCE MANAGEMENT
Ankita Sood
Department of MBA
Govt. P.G. College Dharamshala
IHRM

 International Business must procure, motivate, retain and effectively utilize

services of people both at the corporate office and at the foreign plant. The
process of procuring, allocation, effectively utilizing human resources in an
international business is called International Human Resources Management.
 IHRM can be defined as set of activities aimed managing organizational human
resources at international level to achieve organizational objectives and achieve
competitive advantage over competitors at national and international level.
 IHRM includes typical HRM functions such as recruitment, selection, training
and development, performance appraisal and dismissal done at international
level and additional activities such as global skills management, expatriate
management and so on.
Dimensions of IHRM

According to P.V. Morgan: IHRM is the interplay among 3

dimensions:

HR Activities

Types of employees

Types of countries
Dimensions of IHRM
Dimensions of IHRM
 Three broad activities of IHRM – procurement, allocation and utilization of human
resources cover all the six activities of domestics HRM i.e, HR planning, Employees
Hiring, Training and Development, Remuneration, Performance Management and
Industrial Relations.
 The three national or country categories involved in IHRM activities are:
• The host country where subsidiary may be located
• The home country where the company has its head quarters and
• Other countries that may be sources of labour or finance.
 The three types of employees of an international business are
• Parent Country Nationals (PCNs)
• Host Country Nationals (HCNs)
• Third Country Nationals (TCNs).
For example, IBM which employs Australian citizens in its Australian operations, sends US
citizens to Asia Pacific countries on assignment, and may send some of its Singaporean
employees to its Japanese operations.
Difference between domestic and
international HRM
 Scope- Scope of IHRM is broader than domestic HRM. In addition to basic HR
activities, IHRM has to take into consideration host country laws and regulations,
language translations, relocation and administration services for expatriates
 Perspective- IHRM requires much broader perspective. Even the most common
HR activities have to be handled in different ways in IHRM, because HR
managers working in global perspective face the problem of designing and
administrating the program for more than one country. People in different nations
have different perceptions about different things. MNC’s have to modify some of
their policies to suit local sentiment.
 Human Resource services – MNC’s maintain International Human Resource
Services section to provide services to parent country and third country nationals
like handling their banking investments, housing arrangements, health care,
coordinating home visits etc. involvement of HR in personal life of individuals is
limited in domestic HR
 Difference between domestic and
international HRM
 Enhanced emphasis- in IHRM emphasis on various HR activities change. For
eg. In initial stages MNC uses employee from home country and emphasis is on
expatriation and their relocation. But as MNC matures, emphasis shift to
selection and T & D as they start hiring trained locals
 Exposure to risks- domestic HR is less exposed to risk then IHRM. Risk of
terrorism in other countries, physical safety, adaptability of expatriates is high
 External influence- external factors influence IHRM to a greater extent then
HRM. HR managers of MNC’s have to deal with different legal constraints in
different countries, varied amount of political factors, different type of labour
market in different countries
Issues in IHRM

 According to Hendry (1994), there are three main Issues in IHRM:

 The management and development of expatriates- selection, training,
compensation and repatriation of expatriate failures.
 The internationalization of management through out the organization (host
country, parent country and other third countries)
 The need to internationalize the whole organization by creating a new corporate
culture reflecting the need for greater international experiences across the whole
organization, due to the increasing frequency of cross cultural interactions of
doing business at home as well as abroad mainly Cultural communication &
Language and communication
Issues in IHRM
 Compliance with International Laws- As businesses begin to expand
into the global marketplace or as they hire employees from diverse
geographic and cultural backgrounds, they may have to adapt to new
labour laws and tax liabilities. Eg- Hiring employees who are non-
naturalized US citizens might require HR to apply for work visas and
report economic data to the federal government. Compliance with
international law can be an issue for HR manager, because these laws
tend to be complex and sometimes difficult to implement
 Cultural Diversity- A salient issue in international HR is
understanding and maintaining cultural diversity. Working with people
from different locations or from different cultural backgrounds mean
adapting the business's work style to new ideas, new ways of
communicating and unfamiliar social practices. If you hire an
employee from England, for example, the employee might have
different ideas about how to manage employees or on how to run
technology processes based on her experiences back home.
Issues in IHRM
Benefits and Compensation- In international HR, benefits and
compensation are important in focusing on the work-life balance of
employees. The idea behind work-life balance is to provide
employees with programs and initiatives that improve both their
personal and professional lives. This is considered part of
international HR, because many multinational companies have
already implemented programs such as flexible working time,
paternity leave, extended holidays and on-site childcare.
Training and Development-. Training programs typically
encompass in-house seminars and meetings designed to give
employees on-the-job knowledge of skills that are important to
doing business globally. HR might offer language classes, for
example. Professional development helps employees to hone their
skills in global marketing, international business development and
finance trends.
Issues in IHRM
 Involvement in personal life of employees- HRM requires more involvement
in personal life of employees like handling their banking investments, housing
arrangements, health care, coordinating home visits etc.
 Selecting right type of person – such individuals should be selected who can
mix well with organizational culture.
 Communication and language- in international context , communication and
languages may be different. This creates a problem in organization
 Family adjustment- individual who has to expatriate will either take his family
to other country or not. If he has to move abroad with family, family
adjustments are equally important.
Approaches for recruitment and selection
 Ethnocentric approach – it is biased towards home country.. Key managerial
positions are held by parent country nationals.. It is suitable for initial phases of
international business as firms are not in position to take risks and they
transplant a part of business.eg- Samsung , Toyota give top positions to home
country nationals
 Polycentric approach- opposite of ethnocentric approach. Here host country
nationals are appointed to manage the subsidiaries. MNC’s may use home
country managers to get the operations started, but once the operations start, the
top positions are handed over to the host country managers. Eg Hindustan lever
Ltd uses local people as chiefs. In Brazil 2/3rd employees have to be Brazilians.
 Geocentric approach- In this best people should be selected regardless of
nationality. It facilitates development of international team. Eg Colgate
Palmolive is US based company. Operates in 170 countries and 60% of
employees are from countries other than USA
PARENT COUNTRY NATIONALS
 Advantages-
 Control and coordination by HQ is maintained
 Good managers get international experience
 Assurance that subsidiary will comply with company’s goal , objectives and
policies
 PCN have required skills and experience
 Disadvantages-
 Limits promotional opportunities for HCN’s
 Adaptation to host country may take a long time
 PCN’s may try to impose the styles which may be inappropriate for host country
nationals
 Compensation differences between PCN and HCN may cause problem
HOST COUNTRY NATIONALS
 Advantages-
 No problems with language and culture
 Reduced hiring costs
 No work permit required
 HCN stay longer on managerial positions
 High morale of HCN (promotional scope)
 Disadvantages-
 HQ may have less control over operations
 Hiring HCN limits opportunities for PCNs to gain overseas experience
 Encourage too much of decentralization
THIRD COUNTRY NATIONALS
 Advantages-
 Salary and compensation maybe lower than PCN
 May be more familiar with host country than PCN
 Competent workforce is available
 Promotion opportunities are more for individuals with high potential
 Disadvantages-
 Host govt may resent TCN as much as PCN
 TCN may not comply with HQ style of management
 TCN may not want to return after assignment
Compensation in IHRM
 Compensation policy should be consistent with overall strategy , structure and
business needs of MNC
 Policy must attract and retain staff in the areas where MNC’s have greatest need
and opportunities
 Must facilitate transfer of employee in most cost effective manner for the firm.
 Policy must give due consideration to equity and case of administration.
Employees expectations-
 Financial protection in terms of benefits, social security, living cost in foreign
locations
 Assignment may offer opportunities for income or savings
 May expect housing, education of children, recreation etc
 May expect good career advancements
Approaches to compensation in IHRM
 Going rate approach- base salary of international employees is linked to salary
structure of host country. Problem arise when different international staff are
paid different salary based on their home base salary
 Balance sheet approach equalizes purchasing power of employees at
comparable position levels living overseas, and in home country and to provide
incentives to offset qualitative differences between assignment locations. It
provides equality of pay
 Challenges in IHRM
 Cross-cultural communication- among various countries cross-cultural
communication is very necessary so that they can understand each others through
religion ,culture, art , literature, foreign policies ,fiscal polices ,etc. such type of
bridges of understanding will help to lessen and minimize the gap between two
culture. There is no doubt that the power of understanding is linked with speech,
one of the tools of communication.
 The Organizational Context- it discuss how the internal environment should be
arranged in accordance to international operations. The objectives and the task of
the organization influences its structure. Span of control and level of authority is
big challenge. HR has a greater responsibility in designing the structure. The
structure should be strong enough not only to stand still against the internal
environment but also against the external environment. In IHRM we look at
aspects such as national cultures, work practices, ethics, norms, behaviors etc. So
that HR managers can design a structure that is suitable for the external
environment
 Challenges in IHRM
 Cultural Differences- culture plays a major role in IHRM as it involves understanding and handling a new
culture and a new social system. What aspects an international HR manager should focus on and how he
should respond to cultural differences in an international arena.
 Culture is the way in which a group of people solves problems and reconciles dilemmas. In order to give
meaning and understanding to the culture Hofstede's five dimensional model can be used. According to the
Hofstede there are 5 cultural dimensions.
 Power distance - this is the extent to which power is distributed unequally among the employees in
between the higher positions and the lower positions. Eg- India is a high power distance culture ( even have
a cast system) and USA is a lower power distance culture.
 Individualism vs collectivism- In a individualistic country people would prioritize themselves ( USA)
where as in collectivism country people would prioritize group needs.
 Uncertainty avoidance- People would try to minimize risk they face in a situation (high UA) thy prefer
known system
 Masculinity / femininity- The Masculinity side of this dimension represents a preference in society for
achievement, heroism, assertiveness and material rewards for success. Femininity, stands for a preference
for cooperation, modesty, caring for the weak and quality of life
 Long-term Orientation vs. Short-term Orientation: Short-term oriented culture values traditional
methods, take a considerable amount of time to build relationships. Here the past and the present are
interconnected. Whereas long-term orientation, looks to the future rather than the present or the past. It is
goal-oriented and values rewards.
 Challenges in IHRM
 HRM in the Host Country Context- HRM in host country is how you organize
your employees, recruit them, train them and compensate them once the subsidiary is
operational. We need to outline the way the organization is going to operate. After
that recruitment and compensation policy can be formulated.
 Organization should look for host country specific factors that will have a direct
impact over the operations of the organization. As an example it might be the
corporate strategy to use a pay for performance system but certain legal and social
conditions in the host country will not allow an organization to use such a strategy
(like in Japan pay is according to the seniority).
 An organization has a choice when it comes to selecting the way it plans to operate.
It can either standardize work practices where parent country standards are
maintained globally. Or it can localize the operations according to the host country.
The challenge is to find the point where both options are blended in correct
quantities.
 Organizations are keen in standardizing as much as possible. But it will create
ambiguity and confusion.
 Challenges in IHRM
 Sustaining International Business Operations- in order to sustain in
international market factors like staffing strategy, management style,
distribution of power and autonomy etc. are important
 There are several ways approaches to staffing available for MNC’s.
Ethnocentric is where the subsidiary is given little autonomy and key
management positions are held by foreign nationals. Polycentric is where each
subsidiary is treated as a distinct national entity with some decision making
autonomy. Geocentric is where the MNC takes a global approach to its
operations. It is accompanied by a worldwide integrated business and
nationality is ignored in favour of ability.
 Organization strategy depends on how important the subsidiary is to the
organization. The higher the importance the greater the control the organization
requires over the subsidiary
Challenges in IHRM
 Role of International manager in expatriation - tasks of international manager
is lot more complicated than of a domestic manager. An expatriate, will have to
perform in an unfamiliar environment, he will have to play different roles in
different situations, the support of the family and friends maybe absent, he is
expected to be flexible and adopt to the host country situations quickly etc.
 An important issue is Expatriate failure. It is premature return of an expatriate
before the period of assignment is completed.
 There were several reasons highlighted for expatriate failure, the most common
issues are the inability of the expatriate to adapt to the host country and family
concerns.
 And also humans are social animals; they always want to be a part of a group and
a community. But when an expatriate is send abroad he gets cut off from his
community and gets isolated.
Challenges in IHRM
 Training and Development- Being successful in a domestic environment does
not guarantee the success in an international environment. But organizations
cannot find individuals with the desired characteristics, they must use training and
development to bring those individuals to the desired level.
 In IHRM we develop an individual to carry out future international activities.
 Expatriates generally act as trainers themselves. They have certain skills that host
country employees do not. Thus they train host country employees. This means
not only should an organization train them on handling cross cultural instability
and breaking the language barrier, they should also be trained to handle the
trainers' position
 Many expatriates fail due the inability to adapt to host country environment. Thus
having a good cross cultural training session is vital to a successful international
operation. It was also mentioned that preliminary visits should be a key area in
cross cultural training. language has been a huge barrier for many expatriates to
perform well, thus it should also be a part of the cross cultural training.
 Challenges in IHRM
 Performance Management- So many factors need to be taken into consideration when
assessing an expatriate’s performance , things like the host country environment, the culture,
employee behaviour, ability to connect with the host country culture and social values, ability
to understand its employees etc.
 Performance management of expatriates comprise of following steps: linking with
organizational strategy, setting individual performance goals, identify variables impacting
performance(working conditions, career prospects, organization policy, morale,
compensation package), appraising performance, providing feedback, providing opportunity
for improvement and linking rewards with results .
 Repatriation- most international managers, after a successful international operation, upon
re entering to the host country underwent certain issues. There are two sides to expatriation.
One being that the manager who is returning after a long time will find it difficult to adopt to
his culture and environment after being away from it. Secondly issues related with the work
environment such as change in positions, change in reporting styles, change in organization
culture, new recruits etc.
 Change in the work environment is the one that affects the most. In order to avoid this, the
 Challenges in IHRM
 Compensation- if an organization wants to keep its best employees intact it must make sure that they
compensate accordingly. International mangers are paid much better than local mangers but
compensating in IHRM is lot more complicated than in HRM.
 There are two ways an organization can compensate an employee. The going rate approach is where the
salary structure is in parallel with the host country standards. The balance sheet approach is where the
salary structure would be similar to home country standards
 Salary structure is to be designed to benefit the expatriate. For an example if an Australian manager is
transferred to India they would adopt the balance sheet approach since Australians are paid better than
Indians. If an Indian manager was to go to Australia then they would adapt the going rate approach.
 It is very difficult for someone to accept an international assignment. There is change in culture, living
standards, family issues, re location issues, fear of moving into uncertain territory, career issues etc.
Despite all this, if an organization wants an individual to accept an international assignment the best
way of breaking the above barriers is by compensating them accordingly. Thus the organization must
make sure that not only they are paid better than their subordinates but also it should be equal or better
than what they're paid in their parent country.
 Another important area is allowances. An allowance makes the remuneration package attractive and
helps to increase the living standards of an international manager.
Challenges in IHRM
 Business Etiquettes and Social Customs
 There were always something new to learn in etiquettes, because every culture
has their own unique way of conducting business.
 no matter how qualified and well equipped a manager maybe he has to
understand and work according to culture. By doing things according to the
host's culture expatriates show respect for their culture. Handling these
etiquettes should be one of the factors discussed in the expatriate training
programs. As it will help the future expats to handle business smoothly, since
then they know what they should do and what they shouldn't.
 CULTURAL AND BEHAVIOURAL DIFFERENCES

Concept Of Time
Religion
Patterns Of Thought Personal
Achievement
Personal Space
Competitiveness &
Family roles and individuality
Relationships
Social Behavior

Language Establishment of
Relationships
 Limitations In IHRM:-

 Management is basically the principle based on local cultures,

traditions, practices and needs of the organizational growth. It is not
universal for everywhere, especially in the field of HRM.
 HRM methods and system developed by one society cannot always
be transferred and applied to another.
 HRM and industrial relations practices differ across countries as
these have their historic origin in countries.
 Personnel management and industrial relations are embedded in
societal rules, norms, values, ideologies and no MNC can afford to
ignore the influence of local culture.
THANK YOU