1

International Human Resources Management

Introducti o n:
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 ompany has half its employees outside the !nited "tates# $hilips
has three%fourths of its employees working outside the &etherlands and more than half of
'ricsson(s workforce is located outside "weden.
Issues of managing business are becoming more and more comple) in the same pace as
globalization is taking placing. *he unusual le+el of foreign competition in both domestic and
foreign markets is forcing businesses to find and retain the competiti+e ad+antage. Finding and
nurturing the suitable and capable human resources in the conte)t of high competition at both
domestic and international le+els is high on the list of priorities of the top managements.
,uality human resources are a must for implementing global competiti+e strategies. Firms
e)panding 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 sol+ed by people. -a+ing 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: .ne approach stresses on cross%cultural management. It
e)amines human beha+ior within organizations from an international perspecti+e. ulture
which +aries 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: *he second approach# which was de+eloped from
comparati+e industrial relations describes# compares and analyses -/M systems in +arious
countries. It is a study of countries# their work patterns and managerial practices.
Management of Multinational Firms: *he third approach focuses on aspects of -/M in
multinational firms. In this the focus is on the management of multinational firms ha+ing
operations in different countries and finding uni+ersal principles that apply to the operations of
the multinationals across the world.
What is International HRM
0et us first e)amine what acti+ities constitute -/M. All those acti+ities undertaken by an
organization to utilize its human resources effecti+ely makes -/M. *hose acti+ities include1
2
-uman /esource $lanning
"taffing
$erformance management
*raining and de+elopment
ompensation and benefits
0abor relations
*he abo+e acti+ities will ha+e a change whene+er a firm or its -/M goes international.
!hree "imensions of International HRM activities:
1. $rocurement# allocation# and utilization of human resources. *hese are listed under -/M.
2. *hree national or country categories in+ol+ed in international -/M acti+ities are1
the host country where a subsidiary may be located#
the home country where the firm is head3uartered# and#
the 4other( countries that may be source of labor or finance.
5. *he three types of employees of an international firm1
the host country nationals 6HC#s7#
the parent%country nationals 6$C#s7# and
the third country nationals 6 !C#s7.
*hus# for e)ample# IBM employs Australian citizens 6-&s7 in its Australian operations# often
sends !" citizens6-&s7 to Asia%$acific countries on assignment# and may send some of its
"ingaporean employees on an assignment to its 8apanese .perations 6as *&s7.
Model of International HRM
International -/M has been defined by Morgan as the interplay among three dimensions
namely human resource acti+ities# types of employees# and countries of operation. Acti+ities of
-/M in international scene are the same as those of domestic -/M e)cept that in the former
the acti+ities are done in home country.
*he rele+ant issues that arise out of operating in different countries and employing different
national categories of workers is a key +ariable that differentiates domestic and international
-/M rather than anything else. Failures of se+eral international firms are linked to the poor
international human resource management."tudy conducted by 9esatnick and Bennet on large
!" multinational firm confirm the abo+e statement.
&ow there is a tendency that domestic firms are taking the models offered by international
-/M to manage di+ersity of workforce. But it needs some modification while applying
principles of managing domestic workforce di+ersity to international -/M.
5
International HRM vis--vis Domestic HRM
Core concept:
Introducti o n:
International -uman resource management is the process of procuring allocating and effecti+ely
utilizing the human resources in a multinational corporation or at least three countries. :hile -/
Managers in these organization ha+e to integrate -/ policies and practices across a number of
subsidiaries spread in se+eral countries so that the organization goals can be achie+e at the same
time they ha+e to make these policies and practices sufficiently fle)ible to allow significant
differences in these policies in different countries. International -/M is concerned with
identifying and understanding how the M&(s manage their geographically dispersed worked
force in order to le+erage their -/ resources for obtaining local as well as global competiti+e
ad+antage. 9omestic -/M is the process of procuring allocating and effecti+ely utilizing the
human resources in local countries.
By the name itself# you should already ha+e an idea that I-/Ms work internationally or beyond
national borders# whereas it(s domestic counterpart works within the set# local# national borders.
In this connection# it is also e)pected that the I-/Ms follow not ;ust more rules and regulations
but also more stringent international policies like those related to ta)ation at the international
location of work# employment protocols# language re3uirements# and special work permits. For
local -/Ms# the rules and regulations to be followed are ;ust regarding local ta)ation and
ordinary employment%related issues.
An I-/M operates beyond national borders while domestic -/Ms operate within the borders.
I-/Ms ha+e more functions and are sub;ect to more stringent international rules and are more
e)posed to a wider array of acti+ities as opposed to domestic -/Ms.
In an I-/M# there(s constant change for a broader set of perspecti+es.
In an I-/M# there(s more attention gi+en to the associate or e)patriate employee(s personal
well%being.
*here are more risks in+ol+ed in I-/M than in the 9omestic -/M.
9omestic -/M is done at national le+el and I-/M is done at international le+el.
9omestic -/M is concerned with managing employees belonging to one nation and I-/M is
concerned with managing employees belonging to many nations 6-ome country# host country
and third country employees7
9omestic -/M is concerned with managing limited number of -/M acti+ities at national
le+el and I-/M has concerned with managing additional acti+ities such as e)patriate
management.
<
9omestic -/M is less complicated due to less influence from the e)ternal en+ironment.
I-/M is +ery complicated as it is affected hea+ily by e)ternal factors such as cultural distance
and institutional factors.
Function Difference
In our +iew# the comple)ity of operating in different countries and employing different national
categories of workers is a key +ariable that differentiates domestic and international -/M# rather
than any ma;or differences between the -/M acti+ities performed. *here are se+en factors#
which differentiates international -/M from domestic -/M. *hey are1
1. More HR activities
2. Tax Laws
3. International Relocation and orientation
4. Administrative services
5. Relationship with Host!overnment
". #rovision o$ lan!%a!e translation services
&. More involvement in emplo'ee(s personal lives
). Ris* +xpos%re
,. More external in$l%ences

:e will study each of the abo+e one after the other.
%& More HR Activities:
International en+ironment re3uires the -/ department to undertake more -/ acti+ities than
those in domestic -/. *hey are1 international ta)ation# international relocation and orientation#
administrati+e ser+ices for e)patriates# host go+ernment relations# and language translation
ser+ices.
'& !ax (a)s:
')patriates# the nationals working in different country other than their nati+e land are sub;ect to
laws of the both the nations# both home and host countries.*he -/ department should design
the remuneration so as to e3ualize the impact of ta)es in such a way that there is neither ta)
incenti+e or disincenti+e. *a) laws are widely different in different countries.*a) liabilities in
many cases arise after the foreign assignment is finished. *o a+oid ta) problems#
generally the ser+ices of an accounting firm are taken.
*& International relocation and orientation:
International relocation and orientation in+ol+es acti+ities like imparting of pre%departure
training= pro+iding of immigration and tra+el details= pro+iding housing# shopping# medical
care# recreation# and schooling information= and finalizing compensation details such as
deli+ery of salary abroad# determination of +arious international allowances# and ta)ation
treatment.*he abo+e issues may gi+e rise to problems if considerable time and care are not
gi+en on them.
+& Administrative ,ervices:
>
A multinational firm also has to pro+ide administrati+e ser+ices for e)patriates in the host
country in which it operates.*he policies and procedures with regard to these ser+ices 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# AI9" test in one country is a must in one country but the same is unacceptable
for an employee of another country.
*hese issues must be resol+ed by the -/ function. "uch issues add comple)ity to the pro+ision
of ser+ices to the employee under relocation.
-& Host ./overnment Relations:
-/ department should take care of relationship with host go+ernment employees since
particularly in de+eloping nations work permits and other certificates are more easily obtained
when a personal relationship e)ists between rele+ant go+ernment employees and multinational
managers.
0& $rovision of (anguage !ranslation ,ervices:
$ro+ision of language translation ser+ices for internal and e)ternal correspondence is an
additional international -/ acti+ity. It is# if necessary# e)panded to pro+ide translation ser+ice
to all foreign operation departments within the multinational.
1& More Involvement in 2mplo3ees4 $ersonal (ives:
*he -/ professional or -/ department has to see that the e)patriate employee understands
housing arrangements# health care and all aspects of the compensation package pro+ided for
the assignment 6 like cost%of% li+ing allowances# premiums# ta)es etc.7
Many multinational ha+e an 4 International -/ "er+ices( section that coordinates
administration of the abo+e programs and pro+ides ser+ices for $&s and *&s such as
handling their banking# in+estments# home rental while on assignment# coordinating home
+isits# and final repatriation.
In the domestic ser+ice# the in+ol+ement of -/ with employee(s family is limited. In the
international setting# the -/ department should know the personal life and needs of the
employee in order to gi+e necessary support.
For example# in the cases of re3uirement of marriage certificate for issue of +isa for
an employee being sent on foreign assignment# the -/ department will do ad+ise the bachelors
as to how they can remain in the selection process for assignment.
Apart from pro+iding housing and schooling in the assignment location# the -/ department
needs to care of the left%behind children with regard to their schooling and boarding. In areas of
remote location# the -/ department should arrange for recreation facilities also.
Generally in domestic setting# all these are the responsibility of employee himself. hanges in
'mphasis as the workforce Mi) of $&s and -&s +aries.
.+er a period of time as the foreign operations grow and e+ol+e# the emphasis on certain
acti+ities change. More local trained people become a+ailable. /esources pre+iously allotted on
such acti+ities as e)patriate ta)ation# relocation etc will be transferred to acti+ities such as local
staff selection# training# management de+elopment etc. It is how the responsibilities and
?
acti+ities of local -/ become broader.
5& Ris6 2xposure:
An employee sent on foreign assignment may fail and come back to home country. osts of
such failure are three times higher than those in domestic ser+ice. "uch failure also causes
indirect costs like loss of market share and damage to customer relationships.*errorist problems
should also be properly assessed and safety should be planned by -/ function.
'mergency e+acuation plans should be de+ised by -/.
7& More 2xternal Influences:
Ma;or e)ternal factors like type of go+ernment# state of the economy and accepted practices of
doing business in host country influence the international -/M of multinational firms.
For example# a host country can dictate hiring terms. In Malaysia# the local Malays should be
ade3uately employed and periodical returns should be sent on employment patterns of different
ethnic groups.
In de+eloped countries# the labor is e)pensi+e and certain legal re3uirements ha+e to be met. In
less de+eloped countries# the labor is cheap and employment regulations are relati+ely liberal
and conse3uently the burden on -/ management is less.
*he subsidiary -/ manager should also learn the local business con+entions and code of
conduct like in the areas of gift%gi+ing etc.
Summary:
International -/ concerns itself with more acti+ities# like international ta)ation# international
relocation and reorientation# administrati+e ser+ices for e)patriates# host country go+ernment
relations# and language translation ser+ices which are not there in domestic -/.
"ince the international -/ cuts across more than one nation# a broader perspecti+e in stead of
single%country specific mindset is necessary.
It touches upon personal and family li+es of the employees on transnational assignment. ertain
items of work in international -/ which were in the beginning slowly lose importance as the
firm matures.!nforeseen e+ents like wars etc should be properly thought of. ')ternal
uncontrollable factors like changes in host country economy influence the international -/.
@
Moderating Variables
Introducti o n:
:e ha+e so far learnt that because of in+ol+ement of different countries and different nationals
in -/ at international le+el the sub;ect has become complicated when compared it to domestic
-/. Besides this# there are other factors also which widen or make narrower the difference
between international and domestic -/. &ow let us take a look at each of them.
*here are four +ariables that moderate 6i.e. either diminish or accentuate 7 the differences
between domestic and international -/M.
ultural 'n+ironment
*he industry with which the multinational is primarily in+ol+ed
*he e)tent of reliance of the multinational on its home country domestic market
*he Attitude of "enior Management
:e will e)amine each of abo+e +ariables.
%8 Cultural 2nvironment
ulture is a "haping $rocess Members of a group or a society share a distinct way of life with
common +alues# attitudes# and beha+iors that are passed o+er time from generation to
generation in a gradual# yet dynamic process. A $erson is &ot Born :ith a ertain Attitude -e
ac3uires it through socialization process and hands it down to the ne)t generation.
ulture is so in+isible# but affecti+e a process that one is not always aware of its effect on
+alues# attitudes# and beha+iors. By reading a no+el or story about a group of men of a
particular culture# the differences can not be understood.
*he differences of culture can be better appreciated only when one directly deals with them in
real life% like li+ing with them or interacting with them. *his is called 9culture shoc64 which is
phenomenon e)perienced by people mo+ing across different cultures. *he new en+ironment
re3uires many ad;ustments in a relati+ely short period of time# since it challenges people(s
established thinking pattern to such an e)tent that their identity especially in terms of
nationality# comes into 3uestion. $eople e)perience shock reaction to new cultural e)periences.
*his is because people misunderstand or do not recognize important cues.
ulture shock can lead to negati+e feelings about the host country and its people and desire to
return home. International business in+ol+es the interaction and mo+ement 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 -/ function.
.ne issue of cross%cultural understanding is that relating to distinction between emic and etic
aspects. 'mic is about culture%specific aspects of concepts or beha+ior. 'tic is about culture%
common aspects.
A
2tic approach led to con+ergence theory. 'tic approach is based on the assumption that the
principles and practices of management are uni+ersal and hence applicable to e+ery land. 0ocal
differences should be changed to meet the
uni+ersal practices.
2mic approach led to di+ergence theory. $rinciples and practices are not uni+ersal in that they
are di+ergent and hence local differences should be allowed. 'tic assumptions led to the
erroneous prediction that 8apan would fall behind in industrial performance unless it adapts
itself to the !" practices which were thought to be uni+ersal.
Appreciation of cultural di+ersity as assumed in emic or di+ergence approach is as necessary as
the appreciation of uni+ersality of certain principles or cultural commonalities as in etic or
con+ergence approach.
Importance of Cultural A)areness
It is now generally recognized that culturally insensiti+e attitudes and beha+iors stemming from
ignorance or from misguided belief 6 4 my way is the best( or 4what works at home will work
here(7 are not only improper but cause painful business failures. -ence -/ managers and both
head3uarters and host country should be aware of the cultural differences. Acti+ities such as
hiring# promoting# rewarding and dismissal will be determined by the practices of the host
country. Generally a local person is appointed as -/ manager who should report to the boss
relocated from head3uarters. In such cases what the local -/ manager does may not agreeable
to the boss from the head3uarters.
"uppose a local -/ manager is *hailand has appointed all his relati+es in the office= it is a folly
of fa+oritism or nepotism as per boss( home country practices# but it is a responsibility of local
-/ manager to help his relati+es.
Another example of bringing home country ideas to host country and its subse3uent
repercussions or failures is related to the banning of chewing of betel in $apua of &ew Guinea.
In a multinational company operating in &ew Guinea has noticed that more accidents were
taking place among dri+ers operating hea+y earth mo+ing e3uipment.
*he e)patriate manger linking accidents to use of stimulants like betel%chewing# has banned it.
But in another mo+e to reduce accidents# free coffee was pro+ided at loading points and
the dri+ers were re3uired to alight from the +ehicles at these locations to drink it. :hat the
e)patriates did not realize was that betel nut like culturally acceptable coffee was a stimulant
but the dri+ers chew betel nut to co+er the smell that comes out of drink of alcohol. .ut of
incorrect understanding# they banned a wrong thing in an attempt to correct a situation but it did
not help.
ultural differences cause ad;ustment and handling problems to both e)patriates and families.
*he -/ managers should help the e)patriates prepare for these differences.
B
'8 Industr3 !3pe
Industries are of two types1
Multi%domestic Industry
Global Industry.
Multi-domestic industr3 is one in which competition in each country in independent of the
competition in other countries like retailing# distribution# insurance etc.
/lo:al industr3 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 le+el. A firm of a global industry integrates its acti+ities on
a worldwide basis to capture the linkages among the countries. In multi%domestic industry# the
international firm con+erts its global strategies into domestic strategies. In a multi%domestic
industry# the -/M function is primarily domestic in structure and orientation. *he -/
function of a multinational company in a global industry should be structured to deli+er
international competiti+e ad+antage.
A truly international conception of human resource management would re3uire the following
steps1
1. *he parent organization should recognize that their own assumptions and +alues of
home country are reflected in the way they manage human resources in host country.
2. *he parent should recognize that their peculiar ways are not uni+ersally applicable
though such ways ha+e their strengths and weaknesses.
5. *he parent organization should also recognize that their foreign subsidiaries may ha+e
other preferred ways of managing people# which may neither better or worse# but may
be effecti+e locally.
<. *he cultural differences should be made discussable and usable.
>. All should belie+e that cross%cultural learning will produce effecti+e ways of managing
people.
By the abo+e steps# a multinational company will be able to work through the difficulties
inherent in such a strategy.
*8 Reliance of !he Multinational on Its Home-Countr3 "omestic Mar6et
-/ practices are influenced by the e)tent to which the multinational depends on the home
country domestic market. Global market perspecti+e 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 e)ploring international markets.Many !" companies because of the larger size of their home
country ha+e e)panded relati+ely less into foreign markets as compared to those of "witzerland#
anada# Britain# and "weden.
1C
+8 Attitudes of ,enior Management to International ;perations
*he last but not the least of +ariables that moderate the differences between international and
domestic -/M is attitudes of the senior management.
*he real change should occur in the attitudes of the senior management so as to truly
internationalize the -/ function. If senior management is not strongly oriented towards
internationalization# the importance of the international operations may be de%emphasized. "uch
managements may also erroneously assume that what is practiced in the domestic -/M is
transferable to international -/M. It causes problems and also business failures. &ow the
challenge for -/ manager is to work with top management to global mindset.
2xpanding the Role of HRM in International Firms
.ne study by Bhat et al assessed how and whether -/ department and staff are in+ol+ed in
planning at the strategic and corporate le+els.
*he study concluded that -/ in+ol+ement at the corporate le+el tended to informal# limited in
scope and hea+ily dependent on the competence and personal characteristics of the senior -/
manager. *he -/ manager played a ma;or role separate from the functional area.
"taffing was the main area in which -/ manager was in+ol+ed# strategy formulation= other
traditional -/ areas 6 e.g. compensation and e+aluation of manager performance7 were +iewed
as general management concerns and not primarily -/ related.
At ,<= 6 strategic business unit% is a single or group of products or a single or group of
markets7 # the -/ department was more in+ol+ed in strategic planning= its emphasis was on
how -/ staff could help implement a strategy.
-/ staff should be globally oriented and a global perspecti+e of -/ function through a broader
+iew of issues enables the de+elopment of more effecti+e corporate policies.
*he need for a global perspecti+e applies to both the indi+idual -/ manager and -/
department. *owards this end# the -/ managers should be transferred from head3uarters to
international operations# not into subsidiary -/ departments but into other line positions that
will broaden their perspecti+es. Mo+ing -/ staff from the subsidiaries into head3uarters is
another way of encouraging head3uarters -/ staff to appreciate the international operations of
the firm and to de+elop the policies and acti+ities to support staff throughout the entire global
network. :here+er companies can not afford transfer of staff to international operations of the
firm# other ways like an annual +isit to key foreign subsidiaries. 0arger multinational schedule
fre3uent meetings of corporate and subsidiary -/ managers as a way to foster corporate
identity and to ensure greater consistency in global -/ practices.
But in one sur+ey 6 /eynold(s sur+ey of thirty fi+e ma;or !" multinationals7 it was found that
-/ professionals with international e)perience were typically narrowly focused on e)patriate
compensation. An e)panded +iew of the role of -/M in international operations is re3uired.
11
;ne Caution1 Always churn in your mind the concepts and apply them o+er the latest e+ents
reported in 'conomic *imes or Business "tandard D If done so the registration of the awareness
on your mind will be fairly permanent and help you answer e)amination 3uestions better.
Summary:
Besides the comple)ity of international operations and employees of different countries# there
are other +ariable which make broader or narrower the differences between domestic and
international -/. &ation%specific culture# the type of the industry# the dependence of the
multinational company on home country market and the attitude of the senior management do
make the difference between international and domestic -/.*he role of international -/ is
e)panding now from ;ust staffing to strategy formulation.
Conclusions
:e can say both I-/M and 9omestic -/M are performing same function and ha+e same
responsibilities but differences are the broader and narrow approaches and le+el of work and
function performs. I-/M ha+e performed on broader le+el function and domestic -/M ha+e
performed on narrow or at local le+el. 9ifferent cultures# languages# selection criteria# le+el of
acti+ities# local polices and rules and regulation as comparison international rules and regulation#
risk in+ol+ement# e)ternal influences and internal influences# different employees selection
situations# employees personal li+es in+ol+ement# that may reasons to create the difference
between I-/M and 9omestic -/M.