International Human Resource Management

HRM refers to those activities undertaken by an organization to utilize its

human resources effectively. These activities would include at least the
following:

1) Human Resource Planning

2) Job Analysis and Job Design
3) Staffing (recruitment, selection, placement)
4) Performance Management
5) Training and Development
6) Compensation (remuneration) and benefits
7) Industrial Relations.

The question is, of course, which activities change when HRM goes
international. A model developed by P. V. Morgan will be helpful in
understanding the concept. Morgan defines IHRM as the interplay among
these three dimensions – human resource activities, countries of operation
and types of employees.

1 The broad human resource activities of procurement, allocation and

utilization (these three broad activities can be easily expanded into the HR
activities listed above).

2 The national or country categories involved in IHRM activities:

• The host country where a subsidiary may be located
• The home country where the firm is headquartered and
• `Other’ countries that may be the source of labour, finance and other
inputs.

3 The three categories of employees of an international firm:

• Host country national (HCNs)
• Parent country nationals (PCNs) and
• Third country nationals (TCNs).
 A Model of IHRM as proposed by P. V. Morgan

Human Resource Activities

Allocate Utilize
Procure

Host-country nationals (HCNs)

O
H H t
o o h
Parent-country nationals (PCNs) s m e
t e r

Third-country nationals (TCNs)

Countries

Types of employees

Thus, for example, the US multinational IBM employs Australian citizens in its
Australian operations (HCNs), often sends US citizens (PCNs) to Asia-Pacific
countries on assignment and may send some of its Singaporean employees on
an assignment to its Japanese operations (as TCNs). The nationality of the
employee is a major factor in determining the person’s `category’.

It can be concluded in broad terms IHRM involves the same activities as

domestic HRM.
 Approaches to Staffing Under IHRM

In IHRM four terms are used to describe MNE approaches to managing and
staffing their subsidiaries. These terms are taken from the seminal work of
Perlmutter, who claimed that it was possible to identify among international
executives three primary attitudes – ethnocentric, polycentric and geocentric
– towards building a multinational enterprise, based on top management
assumptions upon which key product, functional and geographical decisions
were made. To demonstrate these three attitudes, Perlmutter used aspects of
organizational design, such as decision – making, evaluation and control,
information flows and complexity of organization. He also included
`perpetuation’, which he defined as `recruiting, staffing, development’. A fourth
attitude – regeocentric – was added later.

International businesses are said to adopt three approaches in staffing –

ethnocentric, polycentric, and geocentric.

Ethnocentric Approach In this approach, all key management positions are

held by parent-country nationals. This strategy may be appropriate during the
early phases of international business, because firms at that stage are concerned
with transplanting a part of the business that has worked well in their home
country. This practice was widespread at one time. Firms such as Procter and
Gamble, Philips, NV, and Matsushita originally followed the ethnocentric
approach. In the Dutch firm Philips, for example, all important positions in most
foreign subsidiaries were at one time held try Dutch national who were referred
to by their non-Dutch colleagues as the Dutch Mafia. In many Japanese and
South Korean firms today, such as Toyota, Matsushita, and Samsung, key
positions in international operations are still held by the home-country
nationals.

There are often sound business reasons for pursuing an ethnocentric staffing
policy:
• A perceived lack of qualified host-country nationals (HCNs).
• The need to maintain good communication, coordination and control
links with corporate headquarters. For firms at the early stages of
internationalization, an ethnocentric approach can reduce the perceived
high risk. When a multination acquires a firm in another country, it may
wish initially to replace local managers with PCNs to ensure that the new
subsidiary complies with overall corporate objectives and policies, or
because local staff may not have the required level of competence.
An ethnocentric policy, however, has a number of disadvantages:
• It limits the promotion opportunities of HCNs, which may lead to
reduced productivity and increased turnover among that group.
• The adaptation of expatriate managers to host countries often takes a long
time, during which PCNs often make mistakes and poor decisions.

Polycentric Approach The polycentric staffing requires host-country nationals

to be hired to manage subsidiaries, while parent-country nationals occupy key
positions at corporate headquarters. For example, Hindustan Uniliver Ltd
(HUL), the Indian subsidiary of Uniliver, has locals as its chiefs.

The main advantages of a polycentric policy, some of which address

shortcomings of the ethnocentric policy identified above, are:

• Employing HCNs eliminates language barriers, avoids the adjustment

problems of expatriate managers and their families and removes the need
for expensive cultural awareness training programs.
• Employment of HCNs allows a multinational company to take a lower
profile in sensitive political situations.
• Employment of HCNs is less expensive, even if a premium is paid to
attract high-quality applicants.

A polycentric policy, however, has its own disadvantages:

• Bridging the gap between HCN subsidiary managers and PCN managers
at corporate headquarters. Language barriers, conflicting national
loyalties and a range of cultural differences.
• Host-country managers have limited opportunities to gain experience
outside their own country and cannot progress beyond the senior
positions in their own subsidiary.

The Geocentric Approach This staffing philosophy seeks the best people for
key jobs throughout the organization, regardless of nationality. Selecting the
best person for the job, irrespective of nationality, is most consistent with the
underlying philosophy of a global corporation. Colgate-Palmolive is an example
of a company which follows geocentric approach. It had been operating
internationally for more than 50 years, and its products are household names in
more than 170 countries. Sixty per cent of the company’s expatriates are from
countries other than the US. All the top executives speak at least two languages,
and important meetings routinely take place all over the globe.

There are three main advantages to this approach:

 • It enables a multinational firm to develop an international executive team
which assists in developing a global perspective and an internal pool of
labour for deployment throughout the global organization.
• It overcomes the `federation’ drawback of the polycentric approach.
• It supports cooperation and resource sharing across units.

As with the other staffing approaches, there are disadvantages associated with a
geocentric policy.
• A geocentric policy can be expensive to implement because of increased
training and relocation costs. A related factor is the need to have a
compensation structure with standardized international base pay, which
may be higher than national levels in many countries.
• Large numbers of PCNs, TCNs and HCNs need to be sent abroad in order
to build and maintain the international tem required to support a
geocentric staffing policy. To implement a geocentric staffing policy
successfully, therefore, requires a longer lead time and more centralized
control of the staffing process.