Introduction to International

Human Resource Management

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IHRM
 IHRM developed as a subject area a little
after the massive wave of interest in HRM
during the 1980s.
 It began as a cluster of teaching, training,
and researching interests primarily around
such areas as:
 (1) the opportunities and problems faced by
multinational corporations (MNCs) and the
failure of expatriates.
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IHRM
 (2) the significance of cross-cultural
communication skills in international
business assignments.
 (3) international aspects of HRM
policies and practices in employee
resourcing, rewards, performance
management, employee development,
and employee relations.
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IHRM
 All these areas are about the aspects of HRM
in the context of MNCs.
 This approach is used to study IHRM by
Dowling, Festing, and Engle (2008), the
authors of your main text.
 and this is also the approach we use to study
IHRM in this subject unit (the 3rd approach
discussed in the next two slides.)

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Approaches to the Study of
IHRM
 The field of IHRM has been characterized by
3 broad approaches:
 1. The first emphasizes cross-cultural
management—examining human behavior
within organizations from an international
perspective.
 2. The second approach, developed from the
comparative industrial relations and HRM
literature, seeks to describe, compare, and
analyze HRM systems in various countries.
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Approaches to the Study of
IHRM
 3. The third approach seeks to focus on the
aspects of HRM in multinational firms.
 The objective of this third approach is to
explore the implications that the process of
internationalization has for the HRM activities
and policies.
 We are particularly interested in how HRM is
practiced in MNCs, i.e., how to manage
people in a multinational context.
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Approaches to the Study of
IHRM
 Note that there is an inevitable overlap
between the 3 approaches when we attempt
to study the field of IHRM.
 Cross-cultural management issues are
important when dealing with the cultural
aspects of foreign operations.
 When we try to study how HRM is being
practiced in MNCs, it is also important to
understand the global differences and
similarities in HR practices—hence, the
comparative approach.
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Inter-relationships between the
Approaches to the Study of IHRM

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Definition of IHRM

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Overview of IHRM
 The HR profession is changing because of
internationalization or globalization of businesses.
 Moving jobs to countries with lower labor costs, such
as China, Thailand, Vietnam, and India, is another
indication of the internationalization of HRM.
 Many factories in Hong Kong have moved to
Shenzhen and Guangzhou in the mainland China due
to cheaper labor costs.
 Similarly, many factories in Singapore have moved to
neighboring Batam Island in Indonesia and to Johor
in Malaysia.

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Overview of IHRM
 The off-shoring of jobs affects not only the
number of jobs in both countries involved,
but also the occupations and skills needed.
 Whenever international outsourcing occurs,
HR management should be involved to
ensure the appropriate consideration of
employment laws, cultural factors, economic
conditions, and other issues.

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Overview of IHRM
 An international company must extend its HR
policies and systems abroad.
 For example:
 Should we staff the local offices with local
managers?
 How should we appraise and pay local
employees?
 How should we deal with the union in our
overseas office?

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Overview of IHRM
 Global staffing is more complex than local
staffing.
 For example, HR activities now include special
candidate selection, overseas assignment,
immigration, cultural training, expatriate
compensation, and foreign taxation.
 It may also involve family-related issues such
as children’s education abroad, and health
issues such as the medical facilities.
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Overview of IHRM
 There are also problems specific to each
country.
 In some countries, medical care facilities may
not be of international standard.
 Special insurance should cover over
emergency evacuation for serious health
problems.
 In other countries, telecommunication
facilities may not be reliable because of
frequent power failure.

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Overview of IHRM
 So the challenge of conducting HR
activities abroad comes not just from
the vast distance involved, but also
from the cultural, political, legal, and
economic differences among countries
and their people.

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Employees of an International
Firm
 3 categories:
 1. host-country nationals (HCNs)
 2. parent-country nationals (PCNs)
 3. third-country nationals (TCNs)

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Employees of an International
Firm
 For example:
 The US multinational IBM employs Australian
citizens in its Australia operations (HCNs),
 Often sends US citizen (PCNs) to Asia-Pacific
countries on assignment, and
 Send some of its Singaporean employees on
an assignment to its Japanese operations
(TCNs).

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Employees of an International
Firm
 Expatriate – an employee who is
working and temporary residing in a
foreign country. Also called
“international assignees.”
 Inpatriate – an employee being
transferred into the parent country
(HQ) operations.

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Employees of an International
Firm
 It is clear in the literature that PCNs are
always expatriates.
 However, it is often overlooked that TCNs are
also expatriates, as are HCNs who are
transferred into parent country operations,
outside their home country.
 Hence, expatriates include all 3 categories of
employees: PCNs, TCNs, and HCNs.

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Employees of an International Firm

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A Model of IHRM
 In conclusion, the study of IHRM includes
three dimensions:
 1. The broad HR activities of procurement,
allocation, and utilization. These 3 broad
activities can be expanded into the major
functions of HR such as HR planning,
recruitment and selection, performance
appraisal, training and development,
compensation, and industrial relations.
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A Model of IHRM
 2. The national or country categories involved
in IHRM activities:
 (a) the host-country where a subsidiary is
located.
 (b) the home-country where the firm is
headquartered.
 (c) other countries that may be the source of
labor, finance, and other inputs.

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A Model of IHRM
 3. The 3 categories of employees of an
international firm:
 (a) host-country nationals (HCNs)
 (b) parent-country nationals (PCNs)
 (c) third-country nationals (TCNs)

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A Model of IHRM
 Hence, IHRM can be seen as the
interplay among these 3 dimensions:
 1. HR activities
 2. Countries of operations
 3. Type of employees

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25
Domestic HR vs. IHRM
 IHRM differ from domestic HR in a
major way—complexity.
 The complexity of operating in different
countries and employing different
national categories of employees is a
key variable that differentiates domestic
and international HRM.

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Domestic vs. IHRM

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1. More HR Activities
 More activities which would not be necessary in a
domestic environment:
 (1) International taxation:
 Expatriates are subject to both home-country and
host-country tax liabilities.
 Tax equalization policies must be designed to ensure
that there is no tax incentive or disincentive
associated with any international assignment.
 Salaries and benefits must be adjusted to ensure that
employees are no worse off by taking an
international assignment.

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More HR Activities
 (2) International relocation and orientation:
 Arrange for pre-departure training.
 Provide immigration and travel details.
 Provide housing, shopping, medical care,
recreation, and schooling information,
 Finalize compensation details.
 (3) Provide language translation services,
cross-cultural awareness and communication
training, and knowledge of ethical
differences.

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More HR Activities
 (4) Provide administrative services, e.g.,
filling out government forms.
 (5) Develop host-government relations
 Work permits and other certificates are
often more easily to obtain when a
personal relationship exists between the
relevant government officials and
multinational managers.

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More HR Activities
 (6) Provide support across countries.
 For example:
 British Airways has a team of HR directors
who travel around the world to help host-
country managers stay updated on
international concerns, policies, and
programs.
 A core HR group in Coca-Cola’s Atlanta HQ
holds a two-week HR orientation twice per
year for Coca-Cola’s international HR staff.

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More HR Activities
 (7) Provide international coordination
 HRIS can help firms to improve their
international coordination.
 A good HRIS can facilitate communication,
record-keeping, and a host of other activities
worldwide.
 HRIS can help to track the whereabouts of
employees traveling or on international
assignments.

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2. The Need for a Broader
Perspective
 HR managers in a domestic environment generally
administer programs for a single national group of
employees .
 Because HR managers working in an international
environment face the problem of designing and
administering programs for more than one national
group of employees (PCNs, HCNs, and TCNs), they
need to take a broader view of issues.
 For example, in designing a reward system, a
broader, more international perspective on expatriate
benefits should be taken into consideration.

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3. More Involvement in
Employees’ Personal Lives
 A greater involvement in employee personal lives is needed to
provide the level of support required to PCNs and TCNs.
 For example:
 Provide housing and schooling in the assignment location.
 Assist children left behind at boarding schools in the home
country.
 Develop and run recreational programs in a more remote
assignment location.
 Set up “International HR Services” dept. to provide services for
PCNs and TCNs such as handling their banking, investments,
and home rental while on assignment; coordinating home visits
and final repatriation.

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4. Changes in Emphasis as the Workforce
mix of PCNs and HCNs Varies
 As foreign operations mature, the emphasis
put on various HR activities change.
 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 HR planning, local staff selection, training
and management development, and
compensation.
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5. Risk Exposure
 Three major types of risk involved:
 (1) Human and financial consequences of failure:
 Expatriate failure (the premature return of an
expatriate from an international assignment) and
under-performance while on international assignment
is a potentially high-cost problem for MNCs.
 The direct costs include salary, training costs, travel
and relocation expenses.
 Indirect costs include loss of foreign market share and
damage to host-country relationships.
 The direct costs of failure to the parent company can
be as high as 3 times of that in the domestic location.

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Risk Exposure
 (2) Terrorism, since the tragic 9/11 attack in
New York in 2001.
 Many MNCs now consider political risk and
terrorism when planning international
assignment.
 Spending on protection against terrorism is
increasing.
 HR Dept. may need to devise emergence
evacuation procedures for highly volatile
assignment locations subject to political and
terrorist violence.
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Risk Exposure
 (3) Epidemic or Pandemic Crisis such as
severe acute respiratory syndrome
(SARS) and avian influenza.
 This will have an impact of the
company’s medical costs.
 HR Dept. may also need to devise
emergence evacuation procedures for
infected assignment locations.

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6. Broader External Influences
 The major external factors that influence
IHRM are:
 (a) The type of government
 A host government can, for example, dictate
hiring procedures, as has been the case until
recently in Malaysia.
 In developed countries where labor is more
expensive and better organized, the
government requires compliance with
guidelines on such issues as labor relations,
taxation, health and safety.
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Broader External Influences
 (b) The state of the economy
 Subsidiary HR manager will become more
involved in administering benefits either
provided or financed by the MNC, such as
housing, education, and other facilities not
readily available in the local economy.
 The recruitment of international staff will
depend on the skilled labor supply and
demand in the market.
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Broader External Influences
 (c) The business environment--generally accepted
practices of doing business in the host country.
 Subsidiary HR manager may need to spend more
time to learn and interpret the local ways of doing
business and the general code of conduct regarding
activities such as gift giving.
 (d) The culture
 IHRM is more sophisticated and culturally sensitive
due to international coordination and differences in
cultures and societal values.
Variables that Moderate the Differences
between Domestic and IHRM

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The Cultural Environment
 Because international business involves interaction and
movement of people across national boundaries, an
understanding of cultural differences (cultural awareness) is
essential.
 Culturally insensitive and attitudes and behaviors stemming
from ignorance not only are inappropriate but also cause
international business failure.
 Activities such as hiring, promotion, rewarding, and dismissal
will be determined by the practices of the host country, and
often are based on a value system peculiar to that country’s
culture.
 Example: there is a large difference between Asia and the UK or
US in relation to the general acceptance of women managers.

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Industry Type
 Multidomestic industry—one in which
competition in each country is essentially
independent of competition in other
countries. Example; retailing, distribution, and
insurance.
 Global industry—one in which a firm’s
competition position in one country is
significantly influenced by its position in other
countries. Example: commercial aircraft,
semiconductors, and copiers.
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Industry Type
 If the firm is in a multidomestic industry, the
role of the HR dept. will most likely be more
domestic in structure and orientation.
 If the firm is in a global industry, the HR
function will need to be structured to deliver
international support and coordination across
countries.
 There will be a strive for consistency in the
way the firm manage people on a worldwide
basis.
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Reliance of the Multinational on its Home-
Country Domestic Market
 MNCs based in the USA have a very large
domestic market.
 A large domestic market will influence all
aspects of how a MNC organizes its activities.
 For example, it will generate a large number
of managers with an experience base of
predominantly or even exclusively domestic
market experience.
 Hence, HRM will also be more domestic
oriented.

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Attitudes of Senior Management
to International Operations
 Whether to truly internationalize the HR function
have a lot to do with the state of mindset of the
senior management.
 If the senior management does not have a strong
international orientation, the importance of
international operations may be under-emphasized.
 In such situations, managers may tend to focus on
domestic issues and minimize the differences
between international and domestic environments.
 END

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