- HRM responsibilities include:
- International Human Resource Management(IHRM)
- IHRM approaches
- IHRM Solutions
- Advantages and Disadvantages of a ‘Decentralised’ Approach to IHRM
- IHRM and Training and Development
- IHRM and Reward Strategies
- IHRM and ‘Balance Sheet’ Reward Strategy
- The objective of Performance Appraisal
- HR Challenges of International Business
- How Inter-Country Differences Affect HRM
- Global Differences and Similarities in HR Practices
- How To Implement A Global HR System
- Making The Global HR System More Acceptable
- Developing A More Effective Global HR System
- Staffing The Global Organization
- International Staffing: Home or Local?
- Off Shoring
- Values and International Staffing Policies
International Human Resource Management(IHRM) includes the firm’s work systems and its employment practices. It embraces both individual and collective aspects of people management. It is not restricted to any one style or ideology. It engages the energies of both line and specialist managers(where the latter exists) and typically entails a range of messages for a variety of workforce groups.
HRM responsibilities include:
- Recruitment and selection
- Training and selection
- Human resource planning
- Assessing the performance of employees
- Payment and reward systems
- Initiatives to align employee developments to corporate strategies.
International Human Resource Management(IHRM)
Boxall, P. (1922) defined International Human Resource Management(IHRM) as ‘concerned with the human resource problems of multinational firms in foreign subsidiaries(such as expatriate management) or more broadly, with the unfolding HRM issues that are associated with the various stages of the internationalism process.
Mark Mendenhall(2000) sought to be more specific by outlining a number of criteria relevant to a definition of IHRM:
- IHRM is concerned with HRM issues that cross national boundaries or are conducted in locations other than the home country headquarters.
- IHRM is concerned with the relationships between the HRM activities of organizations and the foreign environments in which the organizations operate.
- IHRM includes comparative HRM studies; e.g. differences in how companies in Japan, Thailand, Austria, and Switzerland plan for upgrading employee skills and so on.
What IHRM is not
- IHRM does not include studies that are focused on issues outside the traditional activities inherent in the HRM function.
E.g leadership style is not IHRM unless linked explicitly to an HRM function; developing a selection program to measure and select global leaders would arguably lie within the domain of organizational behavior.
- IHRM does not include studies of HRM activities in single countries.
For E.g. a study of personnel selection practices in Saudi Arabia, whether undertaken by an English, German or Canadian researcher, is still a study about domestic HRM in Saudi Arabia. Though such studies may have interest to those who work on international HRM issues, they are essentially examples of domestic HRM research.
Ethnocentric: key positions filled by nationals of the parent company
Polycentric: host country nationals recruited to manage subsidiaries in their own country
Geocentric: best people recruited, whatever their nationality
Regiocentric: best people recruited within the region in which the subsidiary operates (e.g. EU, USA).
The choice of IHRM approach depends upon
- Degree and type of internationalization
- Type of industry and markets served
- Characteristics of staff
- Cultural preferences
Advantages and Disadvantages of a ‘Decentralised’ Approach to IHRM
- Groups within the subsidiary can gain status
- Groups within the subsidiary become more cohesive, fostering group identity
- IHRM takes place within a culture appropriate to the local workforce and customers
- Tendency to become ‘exclusive’
- Loss of central control, higher administrative costs as HRM function is sent ‘down the line
- Loss of organizational control and organizational identity
IHRM and Training and Development
Training and development increases in complexity as MNEs move abroad.
Types of training and development depend on a number of factors:
- The degree to which management is centralized.
- The types of workers employed in subsidiaries or joint ventures.
- The importance of branding, and the extent to which employees are expected to reflect the brand.
- The cultural expectations of training.
- In a global company, the training may well be centralized so that suppliers, employees, and distributors are aware of the brand image that needs to be communicated.
E.g. in Ford training programs are set up centrally, and then translated and delivered to all main suppliers, subsidiaries, and distributors.
If, however, a more polycentric approach is taken, then the training may well be far more local, and more in line with the local culture.
Support provided for employees moving to overseas subsidiaries:
- Environmental briefings
- Cultural orientation
- Cultural assimilation
- Language training
- Sensitivity training
- Field experience
IHRM and Reward Strategies
Design an appropriate reward strategy for employees taking up an international position, may require a number of factors to be considered, including:
- Knowledge of the laws, customs, environment, and employment practices of foreign countries.
- Familiarity with currency relationships and the effect of inflation on compensation.
- An understanding of the allowances appropriate to particular countries, .etc
For example, awareness of employment-related legislation in the country of operation is vital to an appropriate international reward structure. India has as many as 45 labor laws at the national level and close to four times that at the level of the state government
The primary method of drawing up a compensation package is known as the ‘balance sheet approach.
This approach is, according to Reynolds(1986):
‘A system designed to equalize the purchasing power of employees at comparable position levels living overseas and in the home country, and to provide incentives to offset qualitative differences between assignment locations.’
IHRM and ‘Balance Sheet’ Reward Strategy
In order to achieve ‘balance’ in the reward structure, the organization must take into account:
- Income taxes incurred in both home and host country
- Housing allowances(which might range from financial assistance to employees to providing company housing)
- Cost of living allowances(to adjust differences between home and abroad)
- Contributions to savings, pension schemes, etc. while abroad
- Relocation allowances(including the moving, shipping, and storage of personal and household items and temporary living expenses)
- Education allowances for expatriate’s children(e.g. Language tuition and enrollment fees in the host country or boarding school fees in the home country)
- Medical, emergency, and security cover.
- Identifies individual’s strengths and weaknesses
- Reveals organizational obstacles blocking progress
- Provides feedback to improve human resource planning
- Improves communication
Cultural Variations: Performance Appraisals
USA low context
Saudi Arabia’s high context
Japan high context
The objective of Performance Appraisal
- Fairness, employee development
- The direction of the company/employee development
- Who does appraisal?
- Manager several levels up. The appraiser has to know the employee well
- Mentor and supervisor. The appraiser has to know the employee well
- Authority of appraiser
HR Challenges of International Business
In this section, we include the internationalization of business, inter-country, differences affecting HR, and improving international assignments through selection and training & maintaining international employees.
HR and the Internationalization of the business
Now, companies are increasingly expanding their business abroad. For example, big firms like IBM, and Proctor & Gamble have extended their operations overseas to a huge extent. Also, the expansion of the European Union into Eastern Europe and the huge surge in demand across Asian markets have led to even small firms trying to go overseas. Their success also depends on their overseas marketing abilities.
To compete on a worldwide basis, the organization should be able to link the market, its product, and its production plans. The firm must also be successful with its HR policies and systems so as to serve the staffing needs abroad.
For example, “should we recruit the local offices with local or US managers?” How should we maintain relations with unions abroad?”
The Ihrm & Challenges of International Business
According to the research, senior international HR managers consider three key factors that affect the Human Resource Management process in an international environment
Deployment: It means moving the person with the right skills to suitable positions irrespective of geographical boundaries.
Knowledge and Innovation Dissemination: It means spreading the best practices and knowledge throughout the organization negating the place of its origin.
Identifying and developing talent on a global basis: It involves screening those candidates who can perform well in a global environment and also honing their abilities.
It is difficult to maintain global staffing needs as it involves addressing various activities like candidate selection, assignment terms and documentation, relocation processing and vendor management, immigration processing, cultural and language orientation, and training, tax administration, compensation administration, career planning, and development and handling of spouse and dependent matters.
For example, in firms like Ford Motor, an HR manager needs to understand different cultures and the ways to motivate people from a different sections of the societies. While in China, special insurance should be provided to cover emergency evacuations for serious health problems. So for a global HR manager, the job is challenging not just because of the long distances involved but because of cultural, political, legal, and economic differences among the people of different countries.
How Inter-Country Differences Affect HRM
In a capitalist economy like the United States, the companies dealing within the border of the country encounter only a limited set of economic, cultural, and legal variables. In the US, there are some differences among the laws affecting HR across different states but basic federal guidelines help them to solve such matters as discrimination, labor relation and safety, and health easily.
But a company operating globally will encounter heterogeneity. For example, in the UK the minimum legally allocated holidays are 0 while the same is 5 weeks per year in Luxembourg. In Denmark, a company having more than 30 employees need a representative on the board of directors but the same requirement is not met in Italy. So, HR managers need to regularly adapt to the personal policies of different countries.
In general, there are the following inter-country differences
Cultural Factors: Different countries have different cultures – in other words; they adhere to different nations’ art, social programs, politics, and way of doing things. According to the difference in culture, management practices vary among different countries.
For example, the study of 330 managers in Hong Kong, the people’s republic of China, and the United States found that the US managers are most concerned about getting their tasks done. Chinese managers were more focused on maintaining a harmonious environment while the managers from Hong Kong were somewhere in between these two extremes. There are some other findings related to cultural differences which affect HR policies.
For example, Mexican workers expect their managers to keep their distance rather than to be close in comparison to US employees. In Mexico, individualism is valued less than in the United States. So, some workers expect a wider range of services and benefits front their employers although the lists of cultural differences are endless.
For example, in Germany, one is expected to arrive on time and should address the seniors formally. So the people arriving from different countries need to be oriented in order to avoid cultural shock.
Economic Systems: The difference in economic systems also affects HR practices. For example, France – a capitalist society – has strict rules regarding the layoff of workers and also limits the number of hours an employee can work. The labor costs are also substantially different.
For example, in the US, the production workers normally get $21.33 while in Mexico it is $5.41, in the United Kingdom it is $17.47, in Germany, it is $25.08 while the same is only $5.41 in Taiwan.
There are also other factors affecting labor costs. For example, the working hours differ across different nations. For example, annually Portuguese workers devote 1,980 hours of work annually but in Germany, the workers average only 1,648 hours.
In other European economies, employers are required to pay substantial severance pay to departing employees that vary from an amount equalling the salary of the last 2 years in the United Kingdom to a 1-year salary in Germany. In France, the workers get 2 and half days of paid holidays for every month of service per year compared to yearly 223 weeks of vacation in the United States, Italians get around 4 to 6 weeks per year while Germans get around 18 vacation days per year after 6 months of service.
Legal and industrial relations factor:
Industrial relations(the relationship among the worker, union, and employer) also vary from country to country. For example, in the US it is easy to hire and fire a worker but the same is time-consuming and expensive in Europe. In several European countries, the work councils replace the Union-based system of the United States. Work councils are elected by the employees and they meet once a month to decide policies related to the workers. In some countries like Germany, there is another principle called co-determination. It means that employees can legally affect the policies of a company.
Here workers have their own representative in the top management of the employer. But in the United States, the employers decide the wage and benefits according to themselves or by negotiation with the labor unions.
European Union(Trading Blocs): In the 1990s the European Union was formed in order to provide a common market for goods, services, capital, and even labor. There were several advantages to the removal of tariffs as well as easy mobility among workers across different countries. In early 2002 the arrival of the Euro further removed the differences between these countries. Now the European Union laws require multinationals to consult their workers in case of some events like mass layoffs.
After 2008, companies having more than 50 employees in the EU were required to consult their workers about all employee-related actions. But the intra-EU differences remain. For example, some countries have minimum wages while others do not have the same. There are also differences among the number of annual holidays, advanced notice of termination, and employment contracts. There is also a different trend related to work contracts between the United States and European countries.
For example, a letter containing the date, job title, and initial compensation for the new hire is sufficient in the United States, the EU laws ask for a much more detailed statement of the job including the terms and conditions of work within the first two months of the employment.
Even the rules vary within the Eu, for example, in England the work contract needs details on the rate of pay, date when the employment begins, work hours, the vacations entitled, disciplinary rules, and grievances process. But the same is not required in Germany and more emphasis is paid to the type and condition of work. Also like Germany, Italy does not require written job agreements. But with tying these differences will fade away in the EU and the cultural differences will be translated into different management practices.
Global Differences and Similarities in HR Practices
HR practices are different for each country because of the difference in culture, legal/ political systems, and economics. In1990s, the best human resource scholars from 13 countries conducted a survey on international human resource management practices. They did the following analysis.
Personnel Selection Procedures: The selection criteria for employees are almost similar around the globe. In the United States, the employees are ranked on their ability and skills to perform the required job as well as some work experience in some similar jobs.
The same was true for countries like Australia, and Latin America but in Mexico,” having the right connections” was the top priority of being selected or being hired by the employer. In Korea, Indonesia, and the People’s Republic of China, for selection, the emphasis is paid to the “employee test”. But in Japan and Taiwan, the main consideration for the job was “the person’s ability to get along well with others already working here”.
The purpose of performance appraisal: Different countries use different methods to do performance appraisal. For example, In Taiwan, the United States, and Canada employers rank their employees to determine pay but the same is not important in South Korea and Mexico. In Japan and Mexico, the main purpose of the performance appraisal is “to recognize subordinates”. In the United States, Australia, and Taiwan employers use performance appraisal to evaluate the employee’s performance.
Training and development practices: Generally, all the countries share a lot of similarities when it comes to the purpose of providing training and development programs. All around the globe, employers provide training programs in order to improve the technical abilities of their employees. But there is a variant in the form of the amount of training to be provided.
The training expenditure is highest in the United States with per employee expenditure of $724 followed by Japan at $359 and the least expenditure per employee is for the rest of Asia at $241. Likewise, the total training hours per year for employees in Asia is 26 but in Europe, it is 49. All the employers in the world provide the majority of the training as classroom training programs.
The use of pay incentives: In the United States, employers prefer to pay employees for their performance in comparison to the People’s Republic of China. Despite these, the incentives play only a “moderate” role in US pay packages. In China, Japan, and Taiwan, incentives play a major role in the pay packages.
How To Implement A Global HR System
Despite the fact that cultural differences are present around the world, recent studies suggest that standardized HR practices can be used around the world. According to research where the HR personnel of six global companies – Agilent, Dow, IBM, Motorola, Proctor & Gamble, and Shell Oil Corporation, successful implementation of global HR systems leads to the adaptation of best international HR practices. This creates a global HR system acceptable worldwide and which can be developed and implemented effectively.
Making The Global HR System More Acceptable
There are three ways to make the global HR(or ihrm) system acceptable around the world.
- Remind that global systems are more accepted in truly global organizations. The managers of such companies consider themselves from a global perspective and all their business units operate on a truly global basis.
For example, a global organization is not an aggregate of numerous local entities. For example, a global firm asks its manager to build a global team and recruit and place employees globally. This makes the managers more accepting of a standardized HR system.
- Investigate pressure to differentiate and determine their legitimacy. The local managers contradict the global managers on the issues of standardization of selection, training, and compensation.
For example, Dow face stiff resistance from the local managers when it decided to go for online employment recruitment and selection for a particular reason. But with time, it was realized that online recruitment improved the quality of applicants.
- Try to work within the context of a strong corporate culture. The geographical differences can be shed by the presence of a strong corporate culture. The companies like Proctor & Gamble easily implement standardized programs with the help of agreement among far-flung employees because of the strong corporate culture.
For example, Proctor & Gamble emphasizes orderly growth and its culture promotes conformity among managers new recruits are encouraged not to be individualists in approach and they learn to be consistence in self-discipline thorough, and methodical. As all the managers have similar values in Proctor & Gamble, it makes it easier to develop and implement a standardized HR practice worldwide.
Developing A More Effective Global HR System
In short, the following practices can help to develop an effective worldwide HR system.
Form global HR networks: A firm’s HR manager should not limit himself locally but should consider himself a part of the firm’s global HR network. The above-mentioned six big firms did this in various ways. For instance, they created global HR development teams and with their help formed new HR systems. The researchers found that in developing HR systems, the most important factor is “to integrate all local HR managers and treat them as their partners”.
Remember that it’s more important to standardize ends and competencies than specific methods: The researchers conclude that companies should achieve to standardize what is assessed but be flexible in how it is assessed. For example, in IBM managers use a standardized recruitment and selection process throughout the world which emphasizes on who conducts the interview or whether the pre-screen is by phone or in person according to different countries.
Staffing The Global Organization
This involves the identification and selection of people who will feel the vacancy is abroad and then placing them in those positions.
International Staffing: Home or Local?
Multinational companies employ both local and expatriate managers. Expatriates are people who are not citizens of the country in which they are employed. Also, they recruit third-country nationals who are citizens of a country different that the parent of the host country.
For example, a Nepali engineer working in the Tokyo branch of a US multinational automobile company. Today, expatriates are only a few in number compared to local or national managers. There are numerous reasons why to have a lesser number of expatriates. Not many people are interested to do projects outside their country and the costs of using expatriates are far higher than that of a local employee.
A multinational firm can enjoy more respect if it employs local people. Some also fear that expatriates may prioritize short-term projects rather than long ones because they are posted for only a few years. There is a tradition of using expatriates for technical competence. While some multinationals develop their top managers by sending them to different locations abroad.
For example, after a term abroad, the head of general electric Asia pacific region was transferred back to a top executive position as Vice chairman at GE. Another reason to use expatriates is that they know the company’s culture and policies and hence will be able to control them in a better way.
Offshoring means transferring jobs from the firm’s domestic workforce to the local employees abroad. According to the research by Forrester around 588,000 US jobs were offshored between 2000 and 2005 and it was estimated to grow to around 1.5 million by 2010 and over 3 million by 2015.
Offshoring has been a controversial issue for some time now. First from the 1980s to 1990s, mostly the manufacturing jobs were transferred abroad but between 2000 and 2015, according to the US labor department and Forrester Research, an expected 288,000 management jobs, 472,000 computer jobs, 184,000 architectural jobs, 75,000 legal jobs, and around 1.7 million office jobs went abroad.
Offshoring is an HR-centric process because it is the responsibility of the human resource director to select high-quality, low-cost talent and to provide necessary background information on wage rates, working conditions, and productivity.
HR managers should be careful of offshoring because it involves not only finding a low-paid, highly competent workforce but also having an effective management structure in place to manage, and train these employees. Despite the challenges like the far distant locations, HR managers should ensure suitable compensation policies and working conditions.
Values and International Staffing Policies
Apart from the factors like cost and competency, the values of the firm’s top executives play an important role in deciding whether to use locals or expatriates in an organization. Experts have classified the values of top executives as ethnocentric, polycentric, or geocentric.
In an ethnocentric corporation, the home country’s management style, and evaluation criteria are superior to the same practices of the host country.
In a polycentric corporation, there is a belief that only host country managers are familiar with the culture and the behavior of the host country market. So the firm’s subsidiary should be managed by the local people. Geocentric executives believe that the best manager anywhere in the world in which the firm operates should be followed.
In ethnocentric firms like Royal Dutch Shell, the majority of the financial officers around the globe are Dutch nationals. There are numerous reasons for the ethnocentric staffing policies of an organization. For example, a dearth of qualified senior management talent, and a desire to maintain title control. While in a geocentric company, the staffing policies seek the best people for key jobs from around the world. This can be found in most American companies like Ford Motor Company.