INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Semester: IV CIE Marks: 40

Course Code:18MBA HR403 SEE Marks: 60

Teaching Hours / week (L:T:P) 3-0-0 Exam Hours:03

Credits : 03

INTRODUCTION

Everything you need to know about international human resource management. International
human resource management bears both functional and strategic resemblance to human resource
management.

Functionally, it performs almost the same set of activities as human resource management –
recruitment, selection, performance management, compensation, training, industrial relations,
career management etc. Strategically international HRM is closely linked to the business strategy
of the organization.

Pulapa Subba Rao defines international human resource management as, performing HRM and
its related activities and arranging for related and necessary immigration facilities for prospective
and current expatriate employees, by organizations operating in domestic and/or foreign
countries.

Definition
Three Approaches to IHRM

Cross-cultural management

1. Examine human behavior within organizations from an international perspective,

Comparative HRM and Industrial Relations.
2. Seeks to describe, compare and analyze HRM systems and IR in different countries,

3. HRM in multinational firms, Explore how HRM is practiced in multinationals.

Defining IHRM

HRM refers to those activities undertaken by an organisation to utilize its human resources
effectively.

 HRP
 Staffing(recruitment, selection, placement)

 Performance Management

 Training and Development

 Compensation(remuneration) and benefits

 Industrial Relations.

What does IHRM add into the Traditional Framework of HRM?

1. Types of employees

 Within and cross-cultural workforce diversity

 Coordination

 Communication

2. Human resource activities

 Procurement

 Allocation

 Utilization of human resources

 3. Nation/country categories where firms expand and operate

 Host country

 Parent country

 Third country

IHRM

1.The broad HR activities of procurement, allocation and utilization.

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

 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 Nationals (HCNs)

 Parent-Country Nationals (PCNs)

 Third -Country National(TCNs)

Nationality of the employee is a major factor in determining the persons category

Morgan defines IHRM - Interplay among these three dimensions human resource activities, type
of employees and countries of operation

Drivers of internationalization of business

 INTERNATIONALIZATION: defined as expansion across the borders of global regions
and counties into different geographic locations or markets. Hitt.

PULL FACTORS:

 Growth
 Profitability

 Achieving economies of scale

 Risk spread

 Access to imported inputs

 Economic integration and free markets

 Emergence of WTO

 Unifying effect and peace

Drivers of internationalization of business

PUSH FACTORS

 Uniqueness of products or service

 Marketing Opportunities due to life cycles

 Spreading R&D costs

 Resource utilization

 Competition and costs

 Quality improvement

 Government policies and regulations

The drivers of internationalization of business.

 Export
 Import

 Subcontracting

 Technical cooperation

 Commercial cooperation

Different setting of IHRM

1. HEADQUARTERS OF MULTINATIONALS:

 Working as HRM professional in the central and regional headquarters.

 Overseeing movement of employees between HQ and subsidiary

 Either involve HRM policies of HQ or merge with subsidiaries

 Local HR will be incharge.

2. HOME COUNTRY SUBSIDIARIES OF FOREIGN-OWNED FIRMS:

 HR manager working in his or her home country but being employed by a local
subsidiary of a foreign MNE
 HR manager will receive instruction by HQ in foreign land.
  Integrate a local culture and OC into local operations

 Communication styles, philosophy, organizational structure, host country culture,

3. DOMESTIC FIRMS:

 Purely domestic firm, local, hospital farm, dry cleaner or laundry, ski or beachside resort,
road or building construction contractors, or restaurant etc.
 Hiring of employees who come from another country, culture, and language or their
families.

 Deal with competition from foreign firms for customers and suppliers or for capital
which may well come from foreign owned firms.

4. GOVERNMENT AGENCIES AND NON GOVERNMENTAL ORGANIZATIONS:

- Other type of firms global in scope and are concerned with many of the same international
issues.

What is an expatriate?

 An employee who is working and temporarily residing in a foreign country

Some firms prefer to use the term “international assignees”

Expatriates are PCNs from the parent country operations, TCNs transferred to either HQ or
another subsidiary, and HCNs transferred into the parent country

 Global flow of HR

Expatriate

 The difference between domestic and international HRM is that, “Staff are moved across
national boundaries into various roles within the international firms foreign operations”-
Expatriate
 An Expatriate is an employee who is working and temporarily residing in a foreign
country or International assignees

 PCN’s are always Expatriates

Inpatriate

 The transfer of subsidiary staff into the parent country (headquarters) operations
 IHRMRG, IIHR (a division of the US Society for Human Resource Management)
  An Inpatriate as a foreign manager in the US, A foreign manager in the US is then
defined as an expatriate in the US where the US is the host country and the manager’s
home country is outside of the US.

 HCN as an Inpatriate, HCN’s only become inpatriates when they are transferred into the
parent country operations as expatriates'

Transpatriate

 Employees who are moved between subsidiaries again these employees are transpatriates

DEVELOPMENT OF IHRM

 Rapid growth of internationalization and global competition

 Need for international managers

 Developing different organizational cultures

 Learning, knowledge acquisition and adaptation

 Need of effective management

 Traditional hierarchical organizational structures are becoming redundant

 Increasing strategic alliance, cross border M&A

 KM

 Expatriation in international firms

Differences between Domestic HRM and IHRM

1. More HR activities

2. The need for a broader perspective

3. More involvement in employees’ personal lives

4. Changes in emphasis as the workforce mix of expatriates and locals varies

5. Risk exposure

6. Broader external influences

More HR activities

 International taxation and orientation

  International orientation and relocation

 Administrative services for expatriate

 Host government relations

 Language translation services

The need for a broader perspective

 Foreign service or expatriate premium

 Complexity issues

More involvement in employees’ personal lives

 Selection, training and effective management of both PCN and TCN employees
 Housing program

 Health care

 All aspects of compensation

 International HR section

 Banking investment, home rentals, coordinating home visits and final repatriation

Changes in emphasis as the workforce mix of expatriates and locals varies

 Local staff selection

 Training and management development

 Risk exposure

 Expatriate failure- premature return of an expatriate from an international assignment

 Under performance while on international assignment

 Direct cost may be as high as 3 times the domestic salary plus relocation expenses

 Currency exchange rates and location of assignment

 Terrorism

 Political and health

Broader external influences

 Type of government
 The state of the economy
  Generally accepted practices of doing business

IHRM-Models

 HRM has viewed from two different perspectives- HARD and SOFT
 HARD-Reflecting utilitarian instrumentalism, HRM is used to drive the strategic
objectives of the company; HR, the object of formal man power planning is a resource
like other factors of production and an expense of doing business rather than the only
resource capable of turning inanimate factors of production into wealth

 SOFT: development humanist view of HRM, Importance of integrated human resources

policies with business objectives sees this as involving treating employees as valued
assets, a source of competitive advantage through their commitment, adaptability and
high quality.

 Employees are proactive inputs in production processes and are capable of development,
worthy of trust and collaboration, to be achieved through participation and informed
choice

 It is argued that employees employ both hard and soft models

 The Matching Model

 The Harvard Model

 The Contextual Model

 The 5 P Model

 The European Model

The Matching Model

 Highlights the resources aspect of HRM and emphasizes the efficient utilization of HR to
meet organizational objectives
 It Emphasizes a right fit between organizational strategy, organizational structure and
HRM system

 Political forces, economic forces, cultural forces.

 Mission and strategy, HRM, Organizational structure.

 Outcomes: Commitment HR strategy.

 Collaborative HR strategy.
  Paternalistic HR strategy.

 Traditional HR strategy.

Harvard Model

Stresses the human soft aspect of HRM and is more concerned with the employer-employee
relationship

It highlights the interest of different stakeholders in the organization such as shareholders,

management, employee groups, government, community, unions, and how their interest are
related to the objectives of management.

Situational factors:

 Workforce characteristics,
 Business characteristics and conditions

 Management philosophy

 Labor market

 Unions

 Task technology

 Laws and societal values

HRM policy choices

 Employee influence
 Human resource flow

 Reward system

 Work system

HR outcomes

 Commitment
 Competence

 Congruence

 Cost effectiveness

Harvard Model
Long term consequences

 Individual well being

 Organizational effectiveness

 Societal well being

Contextual Model

 Is based on the premise that organizations may follow a number of different pathways in
order to achieve the same results
 This is so mainly because of the existence of a number of linkages between external
environment context (socio-economic, technological, political legal, and competitive) and
internal organizational context (Culture, structure, leadership, task technology, and
business output)

 These linkages contribute directly to forming the content of an organizations HRM.

 Outer context: socio-economic, technical, political-legal, competitive.

 Inner context: culture, structure, politics/leadership, task/technology, business outputs

 Business strategy content: objectives, product market, strategy and tactics

 HRM context: role, definition, organization, HR outputs

 HRM content: HR flows, work systems, reward systems, employee relations.

5-P Model

 Melds five HR activities (Philosophies, policies, programmes, practices, and processes)

with strategic needs
 The model shows the interrelatedness of these activities and explains their significance in
achieving the organizations needs

 HR philosophy: expressed in statements defining business values and culture

 HR policies: expressed as shared values

 HR programs: articulated as HR strategies

 HR practices: for leadership, managerial, and operational roles,

 HR processes: for the formulations and implementation of other activities.

European Model
  Is based on the argument that European organizations are constrained at both
international European Union and national level by national culture and legislation
 They are also constrained at the organizational level by patterns of ownership and at the
HRM level by trade union involvement and consultative arrangements

 These constraints need to be accommodated while forming a model of HRM

Importance of IHRM

 Rapid increase in global activity and global competition

 The effective management of HR internationally

 Shortage of international managers is becoming an increasing problem of international

firms

 Successful integration is dependent on that

 Business failures are often linked to this

 Expatriate failure still a problem

Strategic HRM

 SM refers to the process of formulation, implementing and evaluating business strategies

to achieve organizational objectives
 SHRM refers to the process of developing practices, programs and policies that help
achieve organizational objectives.

Foundation for SHRM

 A clear and concise understanding of the nature and scope of the business that the MNC
is engaged in.
 A good understanding of the global challenges that the particular business / industry
faces.

 Knowledge about the sources of competitive advantage that the MNC has over its
competitors.

 Identify and understand the organizational capabilities that provides the company with
the competitive advantage.

 Establishing the architecture.

 Ensure HR space on the strategy table.

A Model of strategic HRM in MNE

External factors>>>>>

 Internal organizational factors.

 Strategic HRM.

 MNE concern and goals.

External factors

 Industry characteristics
 Country-regional characteristics

 Inter organizational networks

Internal organizational factors

 MNE structure
 Structure of international operations

 Intra organizational networks

 Mechanism of coordination

 Mode of operation

MNE strategy

 Corporate level strategy

 Business level strategy

 Experience in managing international operations

 Headquarters international orientation

Strategic HRM

 HR function strategy
 HR practices

MNE concern and goals

 Competitiveness
 Efficiency

 Balance of global integration and local responsiveness

 Flexibility
Evolution of MNE’s

 License
 Export via agent or distributor

 Export through own sales representatives or sales subsidiary

 Local packaging and/assembly

IHRM Strategies

 Building a global culture.

 Developing the leadership and managerial capability and structure to support global
strategies and operations.

 Gaining management interest and involvement in HRM.

 Ensuring optimum quality and depth of managerial personnel to serve global customers.

 Ensuring managers have the technical and managerial skills for global level.

 Increasing the extent and scope of managerial talent in the organization.

 Developing global and local approaches to T&D.

 Ensuring management succession.

 Sustaining and improving performance at all levels in all areas of the company.

Barriers in effective global HRM

 Variations
 Perception of HR

 Attitudes and actions of headquarters towards HR

 Resistance to change

 Cultural differences in learning and teaching style

Reasons for Emergence of IHRM

 Future of our economic lives through ages

 Multinational companies on our time: The Industrial Revolution of 18th Century gave
international trade an unprecedented boost.

 Advances in Telecommunication and IT: Increased volume of trade between nations

 MNC have played a powerful role

  Principal agents of the internationalization of the world

 Microsoft, HP, Toyota, IBM, and Intel are in the forefront of cutting-edge technology and
innovation.
 In order to operate internationally they need to negotiate entry into other countries, adjust
their operations to comply with the host country legal requirements, modify their
products and services to reflect the religious and other cultural preferences of their
foreign customers and deal with the variety of accounting and taxation systems and trade
policies.

 Employ people from different parts of the world.

 The Multicultural nature of MNCs workforces makes their HRM strategies, policies, and
perhaps one of the most delicate and complicated of all managerial tasks.

 MNCs and People Management.

 Techniques have changed and evolved over time

 Personnel management function,

 Primary activities-Inbound logistics, operations, Outbound logistics, Marketing and sales

service

International Human Resource Management – Introduction

International human resource management bears both functional and strategic resemblance to
human resource management. Functionally it performs almost the same set of activities as human
resource management – recruitment, selection, performance management, compensation,
training, industrial relations, career management etc. Strategically international HRM is closely
linked to the business strategy of the organization.

Hence international human resource management can be defined as the set of activities involved
in hiring, managing performance, compensation, training and relations with employees hired to
manage internal operations of a company, with a view to ensure the success of their international
business and strategies.

International human resource management differs from domestic human resource management
primarily in terms of the complexity associated with managing people across national
boundaries.
International human resource management deals with at least three types of employees based on
their country of origin:

1. Parent-Country Nationals (PCNs) – Employees belonging to the country where a company’s

headquarters are located are called as parent-country nationals or home country nationals.

2. Host-Country Nationals (HCNs) – Employees belonging to country where the company has
set up a subsidiary or a manufacturing facility are called host- country nationals.

3. Third-Country Nationals (TCNs) – Employees who work in the home or host country facility
of the company but are not nationals of either are called third- country nationals.

International HRM also means dealing with issues related to different countries, expatriation,
repatriation, cross-cultural issues etc.

Dowling (1999) attributed to six factors that differentiate international from domestic HRM:

1. Wide range of HR activities.

2. Need for a broader perspective.

3. More Involvement in personal life of the employee.

4. Responsiveness to changes in staffing requirements as international strategy changes.

5. Higher risk exposure.

6. More external influences.

International Human Resource Management – Definition: As Defined by Pulapa Subba Rao

International human resource management (IHRM) is the process of procuring, allocating, and
effectively utilizing human resources in a multinational corporation. If the MNC is simply
exporting its products, with only a few small offices in foreign locations, then the task of the
international HR manager is relatively simple.
However, in global firms human resource managers must achieve two somewhat conflicting
strategic objectives. First, they must integrate human resource policies and practices across a
number of subsidiaries in different countries so that overall corporate objectives can be achieved.

Pulapa Subba Rao defines international human resource management as, performing HRM and
its related activities and arranging for related and necessary immigration facilities for prospective
and current expatriate employees, by organizations operating in domestic and/or foreign
countries.

At the same time, the approach to HRM must be sufficiently flexible to allow for significant
differences in the type of HR policies and practices that are most effective in different business
and cultural settings.

Organizations like Procter & Gamble, IBM, Pepsi and Coca Cola have had extensive
International experience and their success can only be attributed to their capability of constantly
deploying the right people at the right place, facilitating knowledge and innovation dissemination
and constantly identifying and developing talents on a global basis.

Thus for Ford which has a global HR perspective “The company requires understanding different
cultures, what motivates people from different societies, and how they are reflected in the
structure of international assignments”.

International Human Resource Management – Concept

International HRM is the process of acquiring, allocating, and utilizing human resources in a
global business to achieve the stated objectives. Because of global context, international HRM is
the interplay of three dimensions- HR activities, type of employees, and countries of operations.

The three dimensions of international HRM are described here briefly:

1. There are three broad activities in international HRM — procuring, allocating, and utilizing
employees for international operations. These three broad activities cover all HR functions which
are relevant for domestic operations and discussed in different parts of the text.
2. There are three types of employees in a multinational firm based on their place of origin —
parent country nationals, host country nationals, and third country nationals. Parent country
nationals (PCNs) are those whose origin is the country where the firm’s headquarters are located.

Host country nationals (HCNs) are those whose origin is the country where the firm’s operations
are located. Third country nationals (TCNs) are those whose origin is a country which is neither
the home country nor the host country.

3. There are three types of countries involved in international HRM activities — home country,
host country, and third country. Home country is the country of origin of the firm. Host country
is the country in which operations of the firm are carried on. For a single firm, there may be
many host countries. Third country is a country from where resources — human and other
resources — are procured. There may be many third countries.

International Human Resource Management – Need

HRM activities are performed in a particular context. It implies that either different HRM
activities may be required in a global firm as compared to the domestic firm or even if the HRM
activities remain the same, there may be difference in the way of performing these activities.

There are four major contextual variables because of which HRM activities in a global firm
differ from a domestic firm, hence the need for international HRM. These are cultural diversity,
workforce diversity, language diversity, and economic diversity. Let us go through these
variables and see how they affect HRM practices.

I. Cultural Diversity:

Culture of a country is one of the key factors which affect people-oriented processes, and HRM
is a people-oriented process. Therefore, culture of a country has very significant impact on HRM
practices. When we consider global perspective of HRM, we find cultural diversity along the
globe, that is, cultures of two countries are not alike.

Cultural diversity exists on five dimensions- individualism versus collectivism, power

orientation, uncertainty avoidance, masculinity versus femininity, and time orientation. Let us
see how these dimensions affect human behaviour and, consequently, work practices.
1. Individualism versus Collectivism:

People differ in terms of individualism and collectivism. Individualism is the extent to which
people place value on themselves; they define themselves by referring themselves as singular
persons rather than as part of a group or organization. For them, individual tasks are more
important than relationships. Collectivism is the extent to which people emphasize the good of
the group or society.

They tend to base their identity on the group or organization to which they belong. Countries that
value individualism are USA, Great Britain, Australia, Canada, Netherlands, and New Zealand.
Countries that value collectivism are Japan, Columbia, Pakistan, Singapore, Venezuela, and
Philippines.’ India may be placed near to collectivism.

2. Power Orientation:

Power orientation, also known as orientation to authority, is the extent to which less powerful
people accept the unequal distribution of power; people prefer to be in a situation where the
authority is clearly understood and lines of authority are never bypassed. On the other hand, in a
culture with less orientation to power, authority is not as highly respected and employees are
quite comfortable circumventing lines of authority to accomplish jobs.

3. Uncertainty Avoidance:

Uncertainty avoidance, also known as preference for stability, is the extent to which people feel
threatened by unknown situations and prefer to be in clear and unambiguous situations. In many
countries, people prefer unambiguity while in many other countries, people can tolerate
ambiguity.

4. Masculinity versus Femininity:

Masculinity or femininity, also known as degree of assertiveness or materialism, is the extent to

which the dominant values in a society emphasize aggressiveness and the acquisition of money
and material goods, rather than concern for people and overall quality of life.

In societies having masculinity characteristics, more emphasis is placed on ego goals such as
career, money, etc., while in societies having femininity characteristics, more emphasis is placed
on social goals such as relationships, helping others, etc.
5. Time Orientation:

Time orientation dimension divides people into two categories- long- term orientation and short-
term orientation. People having long-term orientation focus on future, prefer to work on projects
having a distant payoff, and have persistence and thrift. People having short-term orientation are
more oriented towards past and present and have respect for traditions and social obligations.

The basic implication of cultural diversity is that same set of HRM practices is not suitable for
all cultures; consideration has to be given about matching HRM practices with cultural
characteristics of the countries concerned.

II. Workforce Diversity:

Workforce diversity is increasingly becoming common for large organizations even for domestic
ones. However, in a global firm, additional workforce diversity emerges because of hiring
personnel from different countries.

A typical global firm may draw its employees from three types of countries — home country
(PCNs), host country (HCNs), and third country (TCNs). In a global firm, workforce diversity
can also be seen in the context of employee mobility from one country to another country for
performing jobs.

On this basis, an employee can be put in one of the following categories:

1. Expatriate — a parent country national sent on a long-term assignment to the host country
operations.

2. Inpatriate — a host country national or third country national assigned to the home country of
the company where it is headquartered.

3. Repatriate — an expatriate coming back to the home country at the end of a foreign
assignment.

Workforce diversity implies that various categories of employees not only bring their skills and
expertise but also their attitudes, motivation to work or not to work, feelings, and other personal
characteristics. Managing such employees with pre-determined HRM practices may not be
effective but contingency approach has to be adopted so that HRM practices become tailor-made.
III. Language Diversity:

Language is a medium of expression but employees coming from different countries have
different languages. Though English is a very common language, it does not serve the purpose
adequately as it does not cover the entire world. While employees coming from different
countries may be encouraged to learn the language of the host country for better dissemination of
the information, it does not become feasible in many cases.

An alternative to this is to send multilingual communications. It implies that anything transmitted

to employees should appear in more than one language to help the message get through. While
there are no hard- and-fast rules in sending such messages, it appears safe to say that such a
message should be transmitted in the languages the employees understand to ensure adequate
coverage.

IV. Economic Diversity:

Economic diversity is expressed in terms of per capita income of different countries where a
global company operates. Economic diversity is directly related to compensation management,
that is, paying wages/salaries and other financial compensation to employees located in different
countries.

One of the basic principles of paying to employees is that “there should be equity in paying to
employees.” However, putting this principle in practice is difficult for a global company because
its operations are located in different countries having different economic status. In such a
situation, some kind of parity should be established based on the cost of living of host countries.

Diversity of various types in a global firm suggests that HRM practices have to be tailor- made
to suit the local conditions.

International Human Resource Management – Various Roles Suggested by Researchers

The HR strategy and the degree of internalization determine the role or roles that HR assumes
upon itself.

Various international human resource management roles suggested by various researchers are:

1. Champions of Processes:
This roles encompasses:

a. Building commitment of the senior leadership.

b. Training managers.

c. Monitoring HR processes.

2. Guardian of Culture:

This includes:

a. Supervision and management of implementation of global values and systems.

b. Ensuring future leaders are sensitive and equipped to deal with global challenges.

3. Effective Political Influencer:

It means:

a. Understanding internal labour market where a subsidiary is located.

b. Managing the internal labour market for the global managers.

4. Network Leadership:

It includes:

a. Building strong internal and external networks.

b. Keeping abreast with latest trends and developments.

c. Mobilizing resources to staff project teams effectively.

5. Builder:

This includes:

a. Articulating various International HR management basics.

b. Developing basic internal HR management practices at the beginning of internalization.

6. Change Partner:

This means:

a. Continuously calibrating human resource management practices as the external environment

changes.

b. To enable the MNC to be agile in terms of its HR practices to meet the challenges of the
environment and cash-on the business opportunities.

7. Navigator:

It encompasses:

a. Competency development of the people and developing a competent organization.

b. Balancing between long-term and short-term plans and goals.

c. Balancing between global integration and local responsiveness.

d. Balancing between change and status quo in an global environment

International Human Resource Management – Activities

Although the major activities of human resource management as practiced in international

organizations, their scope, responsibilities, and authority may vary according to the size of the
subsidiary. The policy making section may study the local situation and generate a report which
will then submitted to the top management for approval. They themselves may not have the
authority to formulate such policies.

Let us look at the major areas generally looked after by the human resource department:

1. Establishing or Reviewing Employment Policies:

Check their relevancy and applicability to International operations. For instance, Equal
Employment Opportunity Policies relevant to the United States may not be applicable to the
subsidiaries in overseas operations. Some countries allow only certain percentage of expatriates
to be appointed in their subsidiaries.
Decisions regarding policies also must be made whether to fill all key positions with parent
country nationals; appointment of home country nationals; appoint the best qualified irrespective
of their nationality and so on.

The employment policies must be approved by the headquarters before they are being circulated
to respective HR managers in various subsidiaries. Such policies also must be reviewed
periodically to check for their workability and validity and proper changes must be incorporated.

Generally, a survey of American companies indicates the following steps used in finding the
right people for jobs and placing them on the jobs after taking them through various steps of the
selection process:

a. Preliminary Screening at campus or company locations

b. Issuing Application Forms to be completed

c. Testing—Psychological or job-related

d. Structured job interviews

e. Reference checks

f. Meeting with Department heads

g. Physical examination

h. Induction

i. Placement on jobs

j. Probations

Most of the above selection methods are transferable to the subsidiaries from the headquarters of
the companies with the exception of a few items. Let us look at the items in somewhat detailed
manner and see how the transferability takes place. If the subsidiary is not large, the human
resource function will be placed under production head who will be in charge of the selection
process and take care of most of the human resource functions and activities, with the help of one
or two clerical personnel.
If the subsidiary is fairly big, then there will be a full-fledged human resource department with
variety of responsibilities, each looking after one section and reporting to the subsidiary human
resource manager. The manager will directly report to the Managing director of the company. At
times, the manager will be a member of the executive committee and participates in policy
making bodies.

2. Recruitment:

Recruitment and selection policies must be established taking local regulations and rules. Human
resource plans must be drawn for the local operations annually and such information must be
passed on to the headquarters for compilation of a cumulative plan for the whole corporation.
Checks and verifications must be made for the accuracy and relevancy for scheduled production
and service operations of the subsidiary.

Such information must be updated annually or when and where changes have been made due to
expansion of operations or retrenchment exercises due to economic slowdown or other human
resource problems.

Since human resource policy issues are already covered, the decisions must be made as to
whether recruit human resources from outside or look for them internally. If the focus is going to
be from outside, then, identify the sources and established contacts with such sources. Such
contacts would help public relations purposes also. Some multinational companies have a good
rapport with schools and colleges in the community and make annual visits to such institutions
for recruitment exercises.

Placing advertisements in the news media also serves as a good exercise not only for getting
potential employees but also gets publicity to the company.

3. Selection Process:

The steps involved in the selection process must be examined to see their relevancy and
applicability to the subsidiaries. For instance, the content and the information secured through
application forms must be relevant and applicable to the local situation. Care must be exercised
in importing such forms from parent company and using them in the subsidiary without
incorporating the local content.

It may be easier to use imported application forms, but they may secure the right kind of
information or the items in such forms may be understood by the applicant. Local laws must be
taken into consideration rather than asking questions pertaining to laws and regulations in the
country of parent organization.

The use of psychological tests is not that common in many Asian and African countries. The
validity and reliability of these tests are not checked for accuracy and applicability. Although
there are no laws pertaining to the use of these tests in India, they may pose language problems.
The academic institutions started to use objective-centered tests for the entrance exams and as a
result of these experiences, students and employees is slowly getting used to such tests.

The interviews are common features of selection program in many companies and there should
not be any problem in this area of selection process. Students who apply for admissions into the
educational institutions or for employment, appear for admission interviews or job interviews.
They get used to preparing for these interviews and adequate training must be given to the
interviewers to conduct such interviews and develop the capability to interpret the information
obtained through the interview process.

In many companies using reference checks for obtaining the recommendations from the
candidates previous employers or from the academic institutions has become a routine matter.
The human resource specialists must learn to use such information more productively for
choosing the right candidate. The ability to interpret the most valuable information is not gained
to an extent in the subsidiaries of international companies.

The interviews conducted by the technical supervisors, foremen, and managers are carried out in
an informal manner. Some of the international companies, particularly, the global companies use
structured approaches to carry out these interviews. At times, the senior people also sit in these
interviews either as observers or to quiz the candidates. Some companies with good HR practices
give practical tests to test the skill level of the candidates.

Once the interviewers have firmed up their mind to the acceptability of the candidate, they may
send the potential employee for a physical examination to check the general health of the
candidate. In some multinational companies, the candidates may be asked to go for some
specialized tests, depending on the nature of work environment and the job.

If the individual is allergic to certain aspects of job, such as, chemicals, it is better to check that
aspect in the early stages itself. This way some legal implications can be avoided. In one of the
American companies, while an employee was asked to carry a heavy load, he suffered heart
attack and ended up suing the company. If the company would have known the condition of the
employee, this incident could have been avoided.

The human resource specialists in some international companies administer highly structured
induction and orientation programs to those selected for jobs after the final interviews and
checking of all records, including the reference checks. In recent years, most of the International
companies seem to have well-structured selection programs.

Once the employees are placed on the jobs and their probationary period is completed, they are
placed on regular jobs and their performance is observed and monitored. Proper guidance and
counseling are offered to those who encounter difficulties whether in adjustments to the
environment or in the learning process. Of course such things do not happen in all international
companies. Generally, some employee turnover takes place during this period. But with proper
built-in safeguards, such turnover can be minimized or eliminated.

International companies must be aware of and knowledgeable in laws pertaining to recruitment

and selection of employees in a particular country. For instance, the Indian Government has laid
down some laws pertaining to the recruitment and selection. As per these laws, reservations for
Scheduled Caste, Tribes Backward Classes exist and certain percentage of jobs must be allocated
for these groups.

As of now, such reservation does not apply to private sector companies. Child labor Protection
Acts do apply to the Private sector companies also. The human resource department must be
familiar with the Factories Act, Environmental Regulation Act (Anti- Pollution), and there are
several legislative measures regarding purchase of land and constructing Factories.

The Equal Employment Opportunity Act implemented in the U.S may not apply to Indian
subsidiaries. The immigration act in the U.S. has direct implication for hiring Indian employees
for jobs in Indian companies in the U.S. Wherever Federal Government funding is secured,
Federal Laws apply.

4. Performance Assessment:

Performance assessment is an essential part of the Human resource Management in many of the
international companies. They may range from simple to complex assessment systems, such as
Competency based systems. The employee’s performance is evaluated periodically with a
formalized assessment system.
Whatever approaches are chosen, the following seem to be the common objectives of a
performance appraisal used in international companies:

1. To help the employees improve their current job performance.

2. To stimulate their interest in self-development

3. To provide an adequate supply of well-prepared employees for promotional exercises

4. To provide a tool for comparing employee s performance with salary for sound salary
administration.

5. To provide opportunity to express his feelings about job related matters.

6. To foster good personal relations.

7. To encourage high standards of performance

8. To let each employee know where he or she stands.

In recent years, quite a number of international companies have imported Management By

Objectives approach to the assessment system in their subsidiaries. With proper training, the
system has become routine and accepted by the employees.

Such a system includes the following steps:

1. Agreement on duties and responsibilities of the subordinate’s job between the boss and the
subordinate.

2. Setting objectives in all areas of major responsibility

3. After setting the objectives, the subordinate submits them to his or her boss.

4. Reporting of progress to the boss.

5. At the end of the given period, the subordinate prepares an accomplishment report comparing
performance to the set objectives.
6. The next important step is the appraisal interview where reasons for not accomplishing
objectives are explored and corrective actions are suggested.

MBO is accepted as a way of life in many international companies and the human resource
department gets the responsibility to make sure the system is in place and carried out effectively.
According to Morrisey, the dynamism that can make MBO a potential force in organizations
occurs only with the recognition that it is a human and not a mechanical process.

In many international organizations, performance assessment occupies an important place due its
impact on providing feedback on the performance to the corporate headquarters or to the
subsidiary heads. Due to its importance, this process is also known as Performance Improvement
Management. The department heads and their subordinates are trained into conducting the
appraisals and providing feedback to their subordinates.

The employee potentials are assessed for upgrading them and grooming them for higher level
positions. Employee career strategies are linked to the feedback obtained from the performance
appraisal outcomes. Setting up of career plans and strategies are not that common in many
international companies.

This may be because of the availability of all types of employees when and where needed. Of
course this attitude is changing and more and more subsidiaries are instituting career plans in
their organizations. Although there are different approaches to career plans and career
development, it is considered as a process of developing a personal strategy that is conceptually
similar to a corporate strategy.

5. Training and Development:

Through Training and Development, international companies have contributed a great deal of
education to the employees of their subsidiaries. In many organizations, a separate department is
set up to look after this responsibility. Training improves the ability and knowledge of operative
employees and development, improves the ability and knowledge of managerial personnel.

While training prepares the individual to meet the requirements of the job by upgrading their
skills, development involves improving a manager’s general knowledge to perform managerial
responsibilities. Managers learn skills to make good decisions during class lectures and when get
back to work, they apply such skills.
The international companies are known for imparting knowledge, skills, and techniques for new
employees and skills need to upgrade for existing employees. The Japanese multinationals spend
quite a bit of money, time, and effort for training employees at the shop-floor not only in Japan
but also wherever their subsidiaries are located. The quality consciousness is put into every
employee. Small group activities are very common in Japanese companies. The Koreans also
follow the Japanese example.

Some of the commonly used training programs in the subsidiaries of international companies are:

a. Job instruction using models or prototypes

b. Apprenticeship training or understudy

c. Job rotation

d. Lectures to provide theoretical aspects of job

e. Coaching, especially low performers

Very systematically and objectively, the training needs are determined in the subsidiaries using
the techniques learnt from the parent company. Through questionnaires, psychological
assessments, and the feedback from performance assessment, the training needs are determined.
Once the needs are determined, appropriate training and development methods are chosen and
the trainees are selected. For managerial personnel, the feedback from performance assessment
system comes as input for selecting the developmental methods.

The developmental methods cannot be simply taken from the headquarters and planted into the
subsidiaries. Such efforts may not yield good results. What constitutes the success criteria in the
local context must be examined systematically and then the relevant programs must be planned.
The subsidiaries must analyze their own situations and try to isolate executive characteristics
necessary to make their executives successful in those situations.

Once these factors are assessed, the developmental programs can be designed and program
sessions can be planned. At times, managers are sent to the headquarters of the parent
organization for gaining insights and education. The Japanese companies are very aggressive in
this aspect. Executives get expose to things as practiced in the corporate headquarters, especially
the world’s best run companies either in Japan, America or Europe. Visiting such places gives
the managers firsthand knowledge and exposure. They are also indoctrinated into the
philosophies and culture of the parent company.

Subsidiaries in many developing countries have set up institutes for providing vocational
training. Some of them were funded by the agencies under the United Nations. The apprentice
programs are still common in these countries. These are well-structured programs which provide
classroom training as well as job training to the people who are coming out of vocational
institutions which provide basic education.

Some of the commonly used developmental programs for executive level in subsidiaries are:

a. Interviewing Skills

b. Negotiation Skills

c. Motivational methods

d. Leadership styles

e. Grievance handling skills

f. Middle management development programs

g. Executive development programs

h. MBA level courses on a part-time basis.

i. Use of local educational institutions

Multinationals use most of the above developmental programs. Moulton and Fickel stress that all
development whether it takes place on or off the job is self-development individual has the
ultimate responsibility for continuing growth as a person and as a professional manager on a
defined career path.

Newer types of developmental methods and techniques are generally imported from the
corporate headquarters and in some cases they are adapted to the local conditions. The local
facilitators and trainers are used to deliver the message. The program content is also adapted to
the local environment and situational conditions. At times, the trainers and consultants are
brought in to deliver the programs with the assistance of subsidiary trainers.

6. Employee Compensation:

Compensation is a complex subject when it comes to International area of management.

Conditions, systems, and legal aspects vary from country to country. If two or more countries are
involved in determining salaries and benefits to their employees in world-wide locations, the
complexity is further increased.

The parent organization may have to work out several policies, procedures, and methods
acceptable to the employees in various subsidiaries. This particular area of business also involves
governmental rules and regulations, economic conditions, pressures from the unions and things
alike. The currency exchange rate will further complicate the issue. When people are moved
from one country to another, the internationally accepted standards and norms have to be
followed.

The expatriate managers may have to be compensated at a much higher level than the local
managers. Their housing, travel, maintaining cars, special clothing allowances, maintenance
expenses have to be added to their salaries. Their compensation package will take varying
income tax rates in different countries. The tax reporting system to their respective governments
is also too complex.

The same types of problems are experienced by the expatriates working for Subsidiaries of
Indian companies. Bharat Forge, Tata’s, Birla’s, Ranbaxy, Infosys Technologies, and Oberoi are
some examples. They have to work out compensation packages to employees in different
countries as per the local conditions and regulations caused by economic, political, and
regulatory backgrounds.

In the compensation practices of multinational companies, variations occur. Different countries

have different systems and policies to determine the salaries and reporting systems. The impact
of national cultures on compensation determination was studied by Schuler and Rogovsky
Development of culture specific compensation practices based on status, performance, social
benefits, and employee ownership plans were examined by the authors.

They tried to correlate these four factors with Hofstede’s four dimensions of culture and found to
be associated with comparative practices.
Generally, there are two common approaches to the determination of compensation in
International companies. These are balance sheet approach and the Going rate approach. In this
approach, the amount paid for income tax, expenses met for house rents and related expenses,
goods and services payments, and discretionary expenses.

The differences between home country and the country of residence are figured out and if there
is a difference, that difference will be compensated. Going rate approach refers to the market
rate. In this approach, the salary structure of the host country is connected to the base salary.
Some supplements are given consideration.

The National Employers’ Federations or some consulting companies put out annual surveys
which are used for determining salaries. Due to some complexities in figuring out the base
salary, this approach is not favored. Only problem is figuring out the taxes and living expenses.
The services of accounting firms and consulting companies are utilized in handing the
compensation matters.

Besides salaries, the benefits offered by the company vary depending on the nationality of the
company. While some are generous, others take a stringent approach. Some countries are
generous in offering maternity benefits for their female employees. The mothers can get nearly
ten month’s salary for their pregnancy related expenses and given a few months of paid leave.
Some countries go to the extent of granting four weeks of paternity leave.

Singapore has developed a very interesting system for compensating employees. This system is
known as Flexible wage system. In recent years the single most important task facing
international and local companies is handing wages and salaries according to changing
environmental conditions. When the panic button is pressed, the human resource people look for
short-term solutions which sometimes may get them into trouble.

There is a great deal of rigidity to traditional compensation systems based on collective

bargaining agreements. Generally these agreements are for two or three years. The increments
are predetermined at the time of collective negotiations and the employers are bound to go by the
agreements irrespective of the prevailing economic conditions. Traditional wage systems also
favor seniority rather than individual performance. Granting across the board increases without
any consideration for individual performance leads to inequity.

A flexible wage system is one that gives discretionary power to the employer in determining
compensation. Such power is essential when deteriorating and unfavorable economic conditions
prevail. Without such power or flexibility, the employer may not be able to adjust to changing
business conditions.

The power to manipulate wages and salaries does not mean that the employer can do anything at
the will. In fact, such power places a greater degree of responsibility on the employer. This
responsibility includes coming out with an equitable compensation system for a given economic
situation.

The flexible wage system has certain principles in common. The basic wage and salary
component of the system reflects the worth of the job. Usually, a job evaluation exercise is used
to assess the relative worth of jobs in a company. Thus inequities in the existing compensation
system must be removed, if the flexible wage system is going to be successful. The company’s
performance and productivity measures are considered in setting aside funds for the distribution
of wages and salaries to increase, payments. Individual s performance is assessed through
performance appraisal as a criterion for distributing payments to individual employees.

An important and critical element in the flexible wage system is the assessment of the
individual’s performance. Along with this is the need to convince the individual that the
assessment is fair and objective. Without an effective appraisal system, a flexible wage system
will not be a flexible wage system.

The flexible wage system and its accompanying appraisal system should not be used as a tool to
justify one’s actions. Rather, it should be used to demonstrate fairness. Now days, new models
are being developed for more fair distribution of wages and salaries across the globe, taking
Globalization into consideration. It is worth keeping an eye on the models and strategies for
Wage and Salary Administration.

International Human Resource Management – Morgan’s Model of International Human

Resource Management

Morgan (1986) had developed a unique model to depict how IHRM works.He asserted that
IHRM basically is comprised of three components, namely-

1. The wide spectrum of HR activities particularly with reference to the added responsibilities of
the international HR managers in terms of managing cultural diversity and developing
international executives.
2. The National/Country specific people and cultural categories involved in IHR activities and
lastly

3. Types of international employees deployed in various international organizations.

1. HR Activities:

The HR activities on an International perspective can be broadly depicted as those of

procurement, allocation and utilization of human resources in the organization. These activities
include international human resource planning, staffing (recruitment, selection, induction and
placement), performance management, training and development, compensation and reward
management and managing international employee relations and industrial relations.

These HR activities with respect to an international scenario have a broad spectrum mainly in
terms of the complexity created by country differences, level of control, cultural differences and
so many factors influencing the international business environment.

2. Country Categories Involved in IHRM:

The model further depicts that in an international perspective three types of country categories
may be involved, namely-

a. The host country where the subsidiary could be located or be operating.

b. The home country where the MNC/International firm could be headquartered.

c. The “third-country” from where employees, capital and other resources like technology or
logistics could be availed or procured by the organization.

3. Employee Categories Involved in IHRM:

Depending on the above country categories, the employees in an international perspective could
be broadly classified as under:

a. Host Country Nationals (HCNs) representing the employees hired from the host country.

b. Parent Country Nationals (PCNs) representing the employees expatriated to the foreign
subsidiary from the home country of the MNC.
c. Third Country Nationals (TCNs) representing the employees deployed from third/other
countries other than that of the home country of the MNC.

International Human Resource Management – Recruitment Policy

Companies operating outside their home countries, essentially, follow three ways of hiring
executives:

1. Ethnocentrism:

It is a cultural attitude marked by the tendency to regard one’s own culture as superior to others.
Sending home country executives abroad – thinking that they will be able to deliver the goods –
may be an appropriate strategy in the initial stages of expanding company operations worldwide
as these officials know what to do immediately. At Royal Dutch Shell, for instance virtually all
financial controllers around the world are Dutch nationals.

Often the other reasons advanced for ethnocentric staffing policies include- lack of qualified host
country managerial talent, a desire to have a unified corporate culture, tight control and the
keenness to transfer the parent company’s core competencies (say, a specialised design skill) to a
foreign subsidiary more expeditiously.

However, a policy of ethnocentrism is too narrow in its focus and may evoke strong negative
reactions from local executives whose upward mobility is blocked.

There is also no guarantee that the expats will win over the hearts of local employees and offer
positive contributions. In fact, failures of US expats range from 10% to 15%. European and
Japanese expat failures are equally alarming, the costs of each such failure running to several
thousands of dollars.

Too often expats are selected on the strength of their domestic track record. They are posted
abroad without requisite cross-cultural training. The family factors stand completely discounted
in the selection process. The rate of failures could be drastically reduced if these issues are
properly addressed.

2. Polycentrism:
In the polycentric corporation, there is a conscious belief that only host country managers can
ever really understand the culture and behaviour of the host country market; therefore, the
foreign subsidiary should be managed by local people. The home-office headquarters, of course,
is staffed by parent-country nationals.

Hiring nationals has many advantages. It eliminates language barriers, expensive training
periods, cross-cultural adjustment problems of managers and their families.It also permits the
firms to attract talented locals by offering an attractive compensation package. Many western
MNCs have found that the key to success on foreign soil is to employ local people.

Analog Devices Inc. has achieved global success in a highly technical field by picking up local
managers, training them extensively and then empowering them to hire and manage more local
talent. Likewise, global sales of Bausch & Lomb improved dramatically after putting the local
managerial talent to good use.

3. Geocentrism:

Geocentrism assumes that management candidates must be searched on a global basis, without
favouring anyone. The best manager for any specific position anywhere on the globe may be
found in any of the countries in which the firm operates. Such a staffing policy seeks the best
people for important jobs throughout the organisation, regardless of nationality. It helps to build
a stronger and more consistent culture and set of values among the entire global management
team.

‘Team members here are always interacting, networking and building bonds with each other, as
they move from assignment to assignment, around the globe and participate in global
development activities’. Colgate-Palmolive is an example of a company that hires the best person
for the job regardless of nationality. It has been operating globally for more than 55 years, and its
products are household names in more than 175 countries.

Fully 60 per cent of the company’s expatriates are from countries other than the Unites States
and two of its last four CEOs were not US nationals. Moreover, all the top executives speak at
least two languages and important meetings routinely take place all over the globe.

International Human Resource Management – Challenges

According to P. V. Morgan, International HRM is the result of an interplay among the three
dimensions — human resource activities, types of employees and countries of operation. The
complexities of operating in various countries and employing different national categories of
workers is an important variable that differentiates domestic and international HRM, rather than
any major differences between HRM activities performed.

Broadly stated, IHRM is “the process of procuring, allocating and effectively utilising human
resources in a multinational corporation “. When compared to domestic human resources
management, the scope of IHRM is very wide.

For example, while compensating people in India, the American MNC must keep in mind the
expectations of locals, the competitor’s compensation structure, taxation problems of repatriates,
TCN’s aspirations and a host of other issues that have a bearing on the psyche of employees
possessing different skills and having different cultural backgrounds (both within and outside the
country).

IHRM, thus, requires a much broader perspective, encompasses a greater scope of activities and
is subject to much greater challenges than is domestic HRM.

International HRM can be a challenging exercise because of fairly obvious reasons:

I. Integration Issues:

It is difficult to push the right button at the right time, especially when managers operate from
headquarters separated by distance. Controlling operations of subsidiary companies in different
parts of the globe through remote control can be really taxing — especially in coordinating effort
and put the same on track in sync with the established policies of a company.

II. Heterogeneous Functions:

International HRM can be very challenging when one takes a look at what international HR
managers are supposed to handle in terms of variety and complexity — including issues relating
to international hiring, placement, culture-specific training, compensation relating problems,
administrative services to expatriates, carrying out appraisals from time to time, offering growth
opportunities to the talented ones, putting out fires with labour, resolving conflicts and
maintaining health labour-management relations, etc.
The employees sent abroad on an assignment need to be taken care of in a special way. Their
families too need to be taken care of including medical, educational, insurance, transportation
benefits, etc. HR issues relating to the above are going to be impacted by a variety of factors
which demand a closer examination.

International Human Resource Management – Issues

Some of the more basic issues involved in pertinent areas of global human resource management
are explained below:

1. Staffing, Recruitment and Selection:

There are basically three ways to meet the requirements of manpower in foreign ventures. First, a
foreign company may send persons of its home country to manage its affairs in the host country.
Second, it can hire people of the host countries to meet its human resource requirements there.
Third, it can also utilise the services of third country nationals. International HRM is now
accepted as the key source of competitive advantage for international business.

In all cases, there have emerged certain norms regarding basic characteristics in international
staffing. These are as follows – (i) cultural adaptability, (ii) strong communication skills, (iii)
technical competence, (iv) professional expertise, (v) global experience, (vi) inter-personal skills,
(vii) family flexibility and (viii) country or region specific considerations. Most of the
multinational companies vie with each other to recruit candidates for technical and managerial
positions from highly reputed technical and management institutes offering them lucrative
compensation packages and try to retain the services of the most talented ones.

Some of the advantages of staffing from the home country nationals are as follows – (i) greater
control over activities of the organisation, (ii) acquisition of experience in local markets; (iii)
greater efficiency in implementing business strategy and (iv) adequate understanding of culture
of the host country. The disadvantages include the following – (i) difficulty in adoption to the
foreign environment, (ii) problems of family adjustability and (iii) friction resulting from
language barriers.

The major advantages of staffing from amongst the host country nationals are as follows – (i)
elimination or reduction of language barriers; (ii) better understanding of host country’s laws and
regulations; (iii) reduction of hiring cost and (iv) reduced compensation package. The
disadvantages include- (i) poor understanding of business objectives of host-country organisation
and (ii) possibility of biases and favouritism in appointments.

The advantages of third country nationals in staffing are as follows – (i) better equipped with the
use of international perspectives and (ii) possibility of low cost of hiring. Disadvantages are as
follows – (i) poor understanding of political situations and national hostilities and (ii) resistance
from the government and local people and functionaries in the organisation.

In India, major requirements of various categories of manpower needed by foreign companies

are met by the people of the country itself. India has a bountiful of software engineers and
analysts, technical and managerial personnel with adequate expertise and specialisation, skilled
and unskilled workers. Most of the foreign MNCs operating in India utilise the services of the
local people to manage their businesses in the country.

The use of information technology, Internet and the services of specialised and professional
organisations have considerably made the task of hiring easy and convenient. Only in the case of
top positions, the foreign companies generally prefer to fill them by personnel of their home
countries.

Foreign companies having their business in India also have the advantage of not facing the
rigours of laws related to management of human resources such as the Civil Rights Act of the
USA, compulsions of co-determination of Germany and a few European countries and
compulsory collective bargaining as in existence in the USA and a few European countries.
Besides, they do not have to face the problems of visa restrictions, rigid immigration laws and
regulation of supplies.

There are, however, legal constraints on dismissing, discharging, retrenching or otherwise

separating specified categories of employees under the Industrial Disputes Act, 1947. Besides,
most of these countries do not have to face problems of language and skill and expertise of
personnel needed for manning positions at various levels. These companies also have the
advantage of outsourcing of specific operations, the facilities of which are in abundance in the
country.

The Indian companies having their businesses abroad do not have to face many problems in
recruitment and selection of suitable candidates for their enterprises as a sufficient number of
qualified and competent people with managerial and technical skills and specialisation are
available in the country for foreign assignments.
They can conveniently be sent to countries having English as the major language. Many of the
Indian students acquire efficiency in different foreign languages, which do not only enhance their
career prospects, but also contribute to the success of the enterprises in the host countries.

Only in a few cases, both the Indian and foreign companies avail of the services of third-country
nationals.

2. Training and Development (T&D):

Training and Development is an important area which calls for special attention in international
human resource management. Although a sufficient number of qualified people with requisite
academic background is available in India, they need suitable training to develop skills and
capabilities commensurate with requirements of jobs assigned to them.

Different foreign and Indian companies have their own specific areas of operations, and their
needs for equipping employees with essential capabilities vary. In the situation of fierce
competition among firms, it becomes imperative for them to keep their employees at the level of
maximum efficiency.

It is the task of training and development programmes to ensure that employees at all levels of
organisational hierarchy are effectively trained and developed keeping organisation’s objective at
the forefront. Some more notable areas of T&D programmes in international businesses
comprise the following – (i) language efficiency, (ii) understanding of the social and political
environment of the host countries; (iii) awareness of the cultural and social environment; (iv)
adaptability to changing situations; (v) efficiency in the use of the computers, Internet and other
electronic devices and (vi) the needs of employees’ career development.

As the extent and dimension of competition, technology job requirements, market conditions and
government policies change, so also it is necessary to arrange for suitable training programmes
on a continuing basis. Some of the methods used for training of managers and executives in
international perspective comprise job rotation training, simulation, conferences, case study and
Internet-based training.

Many reputed companies have started laying increasing emphasis on professional development
in order to enable employees to achieve their carrier-related goals. T&D programmes must also
cover proper understanding of legal framework of the host countries including labour and social
security laws and those related to compensation and personnel matters.
3. Compensation:

In international human resource management, compensation issues are of vital importance.

Companies engaged in foreign businesses must offer lucrative compensation packages to all
categories of employees in order to attract and retain talented and competent personnel.

It must also be emphasised that labour cost has increasingly become an important component of
the total cost of business operations. Although the use of improved technology in various areas
of business activities has tended to replace manpower by electronic and other devices, the total
expenditure on wages and salaries has continued to rise.

While formulating compensation policies and determining compensation packages, it is

necessary to give due consideration to the standard of living, prevailing rates of remuneration,
statutory regulation of wages and fringes benefits, cost of medical care and income tax laws of
the host countries. People of various countries prefer to work in gulf countries as their
emoluments are income-tax free.

Labour laws of many countries also lay down minimum standards related to paid holidays,
vacation time pay, maximum daily and weekly hours, minimum rates of wages statutorily fixed,
liability of the employers in regard to social security benefits and payment of gratuity and bonus.
As there are wide variations in practices in different countries of the world, international human
resource management must take into account the implications of these variations.

Other pertinent aspects that deserve particular attention in international compensation

management, especially in regard to higher positions, include the following – remuneration paid
by competing firms; consistency with international standards; need for career development of
employees; simplicity in administration; and stability in the retention of talents with a view to
maintain the services of talented and indispensable executives. Many MNCs have started
offering stock ownership and equity-based compensation, long-term incentives, profit-sharing
and team-based remuneration to them.

4. Performance Appraisal:

Regular performance appraisal of various categories of functionaries in foreign business is also

important in international human resource management. It is rather very difficult for the home-
country management to evaluate performance of employees working abroad. The task of
performance appraisal of such employees may be entrusted to competent appraisers of the host
country.

However, the home-country management may formulate guidelines and lay down the standards
for key jobs. Certain guidelines for appraisal may be related to objectives of assignment,
emphasis on quantifiable measurement for the assignment, converting qualitative behaviour into
quantifiable measurements, evaluating employees’ performance on these measurements and
making calculations of return on investment (ROI).

It is always desirable to provide feedback which can be helpful in making appraisal objective and
transparent. Foreign companies sometimes have to face the problem of biases and prejudices by
host-country appraisers, impact of unforeseen situations and also group-pressures. Many foreign
companies have started increasing adoption of 360° appraisal. Email has generally been helpful
in making both the appraiser and appraisee aware of the relevant issues in performance appraisal.

Certain Other Areas in International Human Resource Management:

A specific area deserving attention in international human resource management is the standards
set by international and regional organisations in regard to the use of human resources. A
particular mention may be made of the role of the ILO, European Union, (EU), South Asian
Association for Regional Cooperation (SAARC), Association of South East Cooperation (APEC)
and BRICS (Brazil, Russia, India, China and South Africa).

The ILO creates international standards of labour in the forms of Convention and Recommenda-
tion. Conventions are obligation-creating instruments. The member states ratifying a Convention
are under the obligation to give effect to its provisions by enacting labour law or under collective
agreement or in other ways. The MNCs operating in foreign countries must abide by the
provisions of ratified Conventions as embodied in labour law, collective agreement or other
instruments.

Similarly, the European Union also creates norms in various areas related to the use of human
resources in the member countries. Some of these norms are related to industrial relations,
workers’ participation in management and rights and obligations of employers and unions. Some
of the norms adopted by organisations in the Asian countries also have direct or indirect
relevance to the use of human resources.
The areas of activities in domestic and international human resource management are not
dissimilar, but the international HRM requires revamping and modifying them taking into
account the dissimilarities in the cultural, political, economic and legal environment of the
countries in which they operate.

Unit 2:
Strategies for International Growth:
Exploiting global integration-The logic of global integration, differentiation,
Mastering expatriation, beyond the traditional expatriate model, the limits of global
integration. Becoming locally responsive: The roots of responsiveness,
understanding diversity, responding to diversity, the challenges of localization.
Managing alliances and joint ventures.

Going International

• Changing Business scenario at international level

• Parent-Subsidiary relationship

• Parent Company perspective

• The different HRM strategic options available to MNC’s.

• Ethnocentric strategy, Polycentric strategy, Global strategy and Hybrid strategy

International HRM Approaches

Ethnocentric

• Hiring and promoting employees on the basis of parent company’s home country
frame of reference.

Polycentric

• Hiring and promoting employees on the basis of specific local context of the
subsidiary.

Regiocentric

• Hiring and promoting employees on the basis of the specific regional context of
the subsidiary.
Geocentric

• Hiring and promoting employees on the basis of ability and experience without
considering race or citizenship.

• Strategic Approach, Organizational Concerns, and the International Human

Resource Management Approach to Be Used

Going International

• Subsidiary Perspective

• Host country culture

• Host country institutions

• Market conditions and subsidiary mandate

• Subsidiary location

• Dependence on local resources

• Reverse diffusion

• Relationship between parent company and subsidiary is always prone to tension and
conflict.
 • Geographically and culturally differentiated nature of MNC.

• MNC should maintain the balance between two.

Strategies for International Growth

• Exploiting global integration.

• Becoming locally responsive.

• International Alliance.

• International joint ventures.

• International Mergers and Acquisitions.

Exploiting global integration

• Centralized control over key resources and operations that are strategic in the value chain.

• International activities of MNC’s across all countries, strength and trying to achieve
synergy.

• Different countries in which a MNC operates can be linked to each other.

• Competitive value – product development, purchasing, production, demand management,

order fulfillment.

Differentiate and Integrate

• Differentiate or Integrate: Originally a focus of debate among sociologists were discussed

within the context of management and organization studies.

• For an organization to perform effectively in diverse environments, it must be both

appropriately differentiated and adequately integrated in order that the separate units and
departments are coordinated and works towards a common goal.

Balancing Integration & differentiation

• To prevent conflicting loyalties and strategies, integrating mechanisms should be

employed.

• A strong organizational cultural identity, central budgetary control, moving employees

around the departments.

• Need for differentiation in political terms, emphasizing the tension that exists between
the economic imperative and the political imperative.
 • To maintain an equilibrium between these two conflicting forces, authors suggested a
multifocal solution where the focus of decision making shifts between the international
and local depending on the problem under consideration.

• The mindset of managers should have a global framework balancing the needs between
local responsiveness and a global vision of the firm.

• The global organization is face with a paradox: on the one hand it needs to develop
control and coordination mechanism consistent with effective and efficient global
operations; on the other hand it needs to be responsive to national interest which may
impede worldwide activities.

• Multinational to operate at two levels.

• Maintain an HRM orientation that enables local concerns to be addressed yet develop a
team of international staff who can be moved into and out of the various worldwide
activities of the firm thus help the organization bind together.

• It is worth noting that the push towards integration comes from within the firm and also
from outside interests, such as clients and suppliers.

• The distinction between culture-specific and universal aspect of management may also be
relevant to the debate regarding the management of foreign subsidiaries in general and
the question of differentiation and integration in particular.

• The relation between parent company and subsidiaries is dynamic and changes over time
and space.

• Multinational companies do not adopt either integration or differentiation as an HRM

strategy rather than try to accommodate both by maintaining a balance between the two.

The relevance of integration and differentiation dilemma

• The importance and relevance of the question of integration and differentiation varies
from company to company depending on a number of factors, such as

• Level of internationalization

• Their industry

• The market they serve

• The kind of employees they have

HRM policies and practices

 • The form of internationalization and the extent and depth of the companies involvement
in the local market

• HRM issues if company recruits and manages people in that country

• HRM policies and practices, strategies in place

Industry and markets served

• The industry in which a firm is engaged and the nature and scope of the competition it
faces, given the industry, is an important consideration when deciding on an appropriate
overall HRM strategy and the balance between integration and differentiation.

• The most complex form of internationalization for a firm is to have manufacturing or

service plants and units in foreign countries.

• There are various shades within this category of internationalization, depending on the
nature of the market they serve.

• Two extreme types of industries in terms of competition that they face with a wide range
in between

1. The multidomestic industry where competition in each country is essentially independent

of competition in other countries such as retailing, distribution, and insurance.

2. The global industry where the firms competitive position in one country is significantly
influenced by its position in other countries such as commercial aircraft, semiconductors,
and copiers.

• An international companies overall strategy depends on how closely its industry

resemblance one or the other of these two types.

• In a multidomestic industry international strategy consists of a series of more or less

independent domestic strategies.

• In a global industry a firm must in some way integrate its activities on a worldwide basis
to capture the linkage among countries.

HR

• Because the global industry is not merely a collection of domestic industries but a series
of linked domestic industries in which the rivals compete against each other on a truly
worldwide basis.

• in a multi domestic industry the role of the HR will most likely be more domestic in
structure and orientation.
 • The HR policies and practices do not have to be integrated in any significant manner
across various subsidiaries.

• The main role of the HR function would be to support the primary activities of the firm in
each domestic market to achieve competitive advantage through cost reduction and
efficiency or value added to products and services.

• In a global industry HR function needs to be coordinated across all affiliates and

structured in such a way to deliver the international support required by primary activities
of the firm.

• For the companies which operate in a multidomestic industry and adopt a multidomestic
HRM strategy, the dilemma of differentiation and integration is almost irrelevant

Characteristics of Employees

• The kind if employees a company has in its various subsidiaries influences the degree to
which it would let go of control with little fear of disintegration of HRM strategies and
policies of the company as a whole.

• Highly skilled, experienced, fully committed and loyal employees are more likely to keep
the interest of the company within their sight even if they are hurdles of miles away from
its central office.

• The balance between integration and differentiation also depends on whether or not
managers and employees working in a subsidiary are willing to accept centralized control
over the way in which they run their unit

• In subsidiaries employees do not have sufficient skills or experience or have a reputation

for being corrupt or have little to gain from loyalty to the company over and above a bear
minimum, HQ exercise a great deal of control over the foreign unit4

Mechanism to achieve integration in highly differentiated and global companies

• MNC whose operations are run on a global basis and serve global markets, use various
formal and informal devices in order to integrate their activities and their HRM across
their subsidiaries

• Many traditional devices such as budgetary control, formalized rules and regulations,
performance criteria and intra firm accounting practices can be put in place to make
subsidiaries to work towards a common goal and to coordinate their activities –Financial,
Organizational, Cultural and HR categories

Financial Mechanism
 • Parent companies can redirect prioritized activities through central budgetary control,

• Financial limits can be imposed on recruitment for certain jobs, funds may be made
available for employee training in certain skills, performance related bonuses can be
given for excellence in certain areas of activities.

Organizational mechanism

• Company wide accounting practices, rules and regulations governing managers and
employees jobs and conduct, hierarchical command structure, clear and detailed job
descriptions and authority boundaries are some of the ways in which parent companies
ensure similarities of purpose and behaviours among their subsidiaries.

Cultural Mechanisms

• Organizational culture can be considered as a powerful integration mechanism,

organizational culture is a concept which, like its two constituent parts is difficult to
define.

• Its a property of an independently defined stable social unit, It refers to basic assumption
and beliefs that are shared by members of an organization.

• It is a learned product of a group experience and is therefore to be found only where there
is definable group with a significant history.

• Organizational culture as code, a logic, and a system of structured behaviours and

meanings that have stood the test of time and serve as a collective guide to future
adaptation and survival.

Cultural Mechanisms

• Corporate culture as a general constellation of beliefs, mores, customs, value systems,

behavioral norms, and ways of doing business that unique to each corporation that set a
pattern for corporate activities and actions and that describes the implicit emergent
patterns of behaviours and emotions characterizing life in the organization.

• The origin of corporate culture could be traced, among other things, to the founder and
founders of the organization their value system, attitude, beliefs, philosophy, and likes
and believe in caring for employees and being responsive to their customers needs.as a
living entity reflects the learning and retention that have occurred over time

Mastering Expatriation

• International assignees

• Non-citizens of the country in which they are working.

 • Unfamiliar surroundings, make cultural adjustments, face certain challenges regarding
new job.

• Individuals who go overseas to accomplish a job-related goal.

Motives for expatriation

• Pucik-demand driven and learning driven motives.

• Evans- Duration and purpose of international assignments.

• Duration long and purpose demand driven- corporate agency control/knowledge transfer.

• Long and learning driven-competence development.

• Short and demand driven-Problem solving

• Short and Learning driven-Career enhancement

Managing International transfers

• Selecting expatriates

• Preparing for an assignment

• Adjusting to the expatriate role

• In country adjustment

• Managing performance of expatriates

• Compensating expatriates

• Repatriation

Beyond traditional expatriate models

• Tension in expatriate cycle

- Home and host

- Global and local

- Short term and long term

- Cost and investment

- Demand and supply

 • Changing demographics of expatriate population

• Women expatriates

• Younger expatriates

• Dual career considerations

Alternatives to expatriation

• Global integration without expatriates

• Inpatriation

The Global Mindset

• Expatriate

• A person living outside citizenship country

• Global Mind-set

• A mind-set that combines an openness to and an awareness of diversity across

markets and cultures with a propensity and ability to synthesize across this
diversity

Stage and form of internationalization

• Importing

• Exporting

• Franchising and licensing

• Joint Ventures

• Mergers and Acquisitionas

• Wholly owned subsidiaries

• Portfolio Investment

IHRM in International Joint Venture

• International Joint Ventures have been increasing in numbers in the past two decades or
so along the burgeoning of international trade and opening up of the markets previously
closed to foreign investment.
 • Joint ventures between two or more companies from different national backgrounds are
in many ways mini-MNCs located in the same country.

• Because of their multi-parentage status their management is much more complicated and
prone to frequent bouts of tension.

• The management of human resource in such companies brings to a head, among others
different national and organizational and other characteristics of IJVs host nation also
have a major role to play.

International JV and the rationale behind their formation

• IJV formed by organizations in two or more countries have become a widespread form of
cross border business cooperation,

• IJVs offer unique benefits of cross culturally meshing each organizations complementary
skills, assure or speed up market access transnationally, leap-frog the host nations
technological gaps, and strategically respond to increasingly intense and global
competition.

• International JV and the rationale behind their formation

• IJVs have proliferated because individual companies recognize that expansion into new
markets can be resource-intensive and risky.

• Acquisition and merger are less attractive, especially if the venture is product or time
dependent.

• Companies may meet significant resistance to opening new markets in foreign countries
as governments may require a stake in IJVs or insist that local companies have significant
holding of the new company equity.

5 Major perspectives

• Mainstream economies orientation

• The transaction cost approach

• Resource dependence

• Organizational learning

• Strategic positioning

5 Major perspectives
1.The mainstream economies approach treats the extension of the firm by alliance as a means to
obtain economies of scale and some control over inputs at a low cost.

2. Transaction cost approach can be achieved by emphasizing the use of all alliance as a means
of reducing cost, specially the transaction cost involved in extending vertical links and in
transferring technology negotiation and renegotiation of contracts, the creation of trust between
partners.

3. The resource dependency explanation are to extend the firms domain of control through
vertical links and risk sharing.

4. The transfer of technology and exchange of patent motives are the implied motives of
organizational learning.

5. The strategic positioning suggests that alliance are formed by the desire to shape competition
and consolidate the firms market position.

Advantages

• Partners knowledge of the local scene.

• Its political connection and ability to work with the bureaucracy and handle myriad other
issues.

Performance record of JV

• JV and other forms of SA have had a mixed records

• The term alliance can be deceptive, An alliance really means an eventual transfer of
ownership,

• The median life span for alliance is only about 7 years and nearly 80 percent of JV one of
the most common alliance structures-ultimately end in a sale by one of the partner

Rationale and motives for IJVs

• Risk reduction

• Product rationalization and economies of scale

• Exchange of complementary technologies and partners

• Coping with or blocking competition

• Overcoming government protectionist policy

• Getting access to foreign market

 • Facilitating international foreign expansion

• Vertical quasi integration

• Diversification

• Consolidation of market position

• Obtaining lower cost locations

• Technology development

• Market power

• Market development

• Resource specialization

• Large projects

Reasons for JVs failure

• Partners would not get along

• Market disappeared

• Managers from disparate partners in the ventures could not work together

• Partners who were to contribute information or resources could not deliver through their
personnel

• Partners reneged on their promise

International strategic alliance

• International strategic alliance have been growing in importance in recent years as a

choice vehicle for companies to expand their product, geographic or customer reach.

• Between 1990-95, 25 percent growth annually.

• As the terminology implies, the companies involved in a strategic alliance join together in
an exercise of shared strategies and vision, usually in order to be able to handle their
environments and markets more effectively but, they do not share financial and
managerial activities.

• The companies may own a certain proportion of each other’s share, but they do not
become or create a jointly-owned entity and do not loose their independence.
 • Joint ventures are a form of strategic alliances where the partners involved move a few
steps further than sharing visions, strategies, and markets. They create a new company in
which they share assets and ownership, pool together their skills and knowledge, mix
employees, and engage in joint management.

• As a mechanism for growth and expansion, international joint ventures are suitable for
smaller companies as well as large corporations because small businesses may be able to
expand more quickly or create market opportunities beyond their present internal
capacity.

• The setting up and management of the new organization are usually subject to a formal
agreement between the parents in terms of funding and operation the degree of formality
may vary from case to case.

International Strategic Alliance-Meaning

• An alliance or strategic alliance is a formal relationship between two or more parties to

pursue a set of agreed upon to meet a critical business need while remaining independent
organizations.

• SA occurs when at least two companies combining value chain activities for the purpose
of competitive advantage.

• Collaboration between two or more MNC that is developed to let them jointly pursue a
common goal.

Types of Strategic Alliance

1. On the Basis of Directions of Alliance.

a. Diversification Alliance

b. Vertical networks and Alliances

2. On the Basis of Extent and Timescale of Collaboration.

a. Extent of cooperation focused and complex Alliances

b. Timescale of the Collaboration

c. Consortiums

People issues in IA

• Organization Structure and reporting relationships

• Culture
 • Pre-alliance due to diligence

• Cross cultural skills

• Succession plans

• Managerial capabilities

• Cross border alliance

• People and management issues

Managing Alliance

• Shared Management Agreement

• Assigned Arrangement

• Delegated Arrangement

Risks

• Clash of cultures

• Unrealized Partner Expectations

• Surrender of Sovereignty

• Risk of losing Core Competence to a Partner

Importance of IA

• Spread and reduce costs

• Specialize in competence

• Avoid or counter competitions

• Secure vertical and horizontal links

• Gain location specific Assets

• Diversify geographically