Bus 2203

Unit XII – INTERNATIONAL HUMAN RESOURCE MANAGEMENT

Learning Outcomes: As a result, students must be able to:

LO1. Analyze the political, economic, sociocultural and technological factors in other countries that affects HR
management;
LO2. Differentiate domestic HRM from international HRM (IHRM)
LO3. Compare the different types of employees and categories of countries involved in IHRM.
LO4. Show willingness to respond to the trends and future of IHRM when needed
Values Focus: Broadmindedness, intelligence

Introduction:
Globalization have made firms to deal with complicated sets of issues related to cultures, geographies,
employment laws, business practices, and safety of employees in other countries. All these issues affect human
resource management. They include issues such as how to deal with employees who are better informed now
than their counterparts ten years before, because of Internet and social media. Issues on how to determine the
knowledge and skills of workers worldwide, how to hire and train them, dealing with expatriates, and training
foreign managers abroad are some of the challenges multinational companies have to deal with.
Many companies today are involved in international business in some ways. Why are some firms expanding
globally?
According to Mendoza and Garcia (2019) there are several reasons for this which include the following:
1. To capture and enhance market opportunities that foreign countries may present. Companies can find
new areas on the fast-growing markets in other countries.
2. To achieve economies of scale in the company’s production and administration by expanding its scope
and volume in the international market.
3. To keep up with industry leaders it may require entry to the foreign markets.
4. To acquire ownership of foreign-based organization or subsidiary. The biggest advantage of having a
foreign subsidiary is that it gives the parent company or holding company an international presence and
helps the company market products in a foreign soil.
According to Snell, et al (2016), other companies enter the global market:
1. To take advantage of cheap labor in other countries,
2. To leverage specialized skills of human resources internationally, or
3. bring in new ideas into the company

Analyzing the International Environment

To help companies manage in the global environment, it must perform a PESTEL (political, economic,
sociocultural, technological, ecological, and legal) analysis. It is an assessment of a company’s environment to
help it determine its strategy and HR response. Conducting a PESTEL analysis entails a scanning of external
environment to monitor the trends and events that will impact the company in the long-run. PESTEL analysis can
help HR managers to:
 Spot business or personnel opportunities and gives advance warnings of threats,
 Spot trends in the business environment and adopt proactively to these changes,
 Avoid implementing HR practices in a particular country where they may fail,
 Break free of old habits and assumptions about how people should be managed to help bring about
innovative ideas for the entire company.

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The process of conducting a PESTEL analysis:

 Determine the relevant strategic factors that need to be considered and assessed.
 Assessed how these factors affect your company’s international operations.
 Develop HR practices in the appropriate locations for the appropriate employees.

Key areas that affect organizations:

1. Political Factors – examining a country’s political stability, property rights, lobbying activities, etc.

2. Economic Factors – consist of trends around market and trade cycles, specific industry changes,
customer preferences, and country economic growth forecasts.

3. Sociocultural Factors – a country’s communications, religion, values and ideologies, education, and
social structure have important implications in a company’s decision about when and how to do business
there.

4. Technological Factors – refer to the maturity of manufacturing equipment, information systems,

technology platforms, research funding, and consumer access to technology.

5. Ecological or Natural Environment Factors – includes energy conservation, pollution control, etc.

6. Legal Factors – local and state laws, as well regulatory agencies and labor laws.

International Organization Forms

How might a PESTEL analysis decide how you run your business in a foreign location?
International business operations can take several different forms. The following are the four basic types of
organization forms companies use to carry out their international business:

1. International corporation – a domestic firm that uses its existing capabilities to move into overseas
markets. These companies such as Honda, General Electric, and Procter & Gamble used this approach to
gain access to Europe—they essentially adopted existing products for overseas markets without changing
much else about their normal operations.

2. Multinational corporation (MNC) – a firm with independent business units operating in multiple
countries. It has several subsidiaries operating as stand-alone business units in multiple countries. These
companies have traditionally given their foreign subsidiaries a great deal of latitude to address local issues
such as consumer preferences, political pressures, and economic trends.

3. Global corporation – a firm that has integrated worldwide operations through a centralized home office.
It views the world as a single market; operations are controlled centrally from the corporate office.

4. Transnational corporation – a firm that attempts to balance local responsiveness and global scale via a
network of specialized operating units. Specialized facilities permit local responsiveness; complex
coordination mechanisms provide global integration.

These organizational forms influence the kinds of managerial and human resources issues a corporation faces.

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International Labor Environment

What is International Human Resource Management (IHRM)?

International Human Resource Management – can be defined as a set of activities aimed at managing
organizational human resources at the international level to achieve organizational objectives and achieve
competitive advantage over competitors at the national and international level (Mendoza and Garcia, 2019).
 IHRM is basically the process of procuring, allocating, and effectively utilizing human resources in an
international business. IHRM therefore, is the process of sourcing, allocating, and effectively utilizing
human resources in a multinational organization.

How does domestic HRM differ from international HRM?

 According to Stone (2008) domestic HRM as practiced within the geographical boundaries of one
country, is focused on the management of people in a single-country context.
 On the other hand, Stone defined IHRM as practiced by multinational organization is focused in the
management of people in multi-country context (Mendoza and Garcia, 2019).

Two major factors that differentiate HRM from IHRM:

1. The complexities of operating in different countries with different cultures.
2. The employment of different nationals and different categories of workers across borders.

Moreover, International HRM differ from domestic HRM in the following ways (Snell, et al (2016):
 It places a greater emphasis on functions and activities such as relocation, orientation, and translation
services to help employees adapt to new and different environments outside their own countries and to
help local employees adapt and integrate into the foreign companies in which they were hired.
 Companies have to devote much time and money in dealing with complications that arise from operating
in multiple countries.
 HR managers from Mother Company have to travel across countries to help ensure that HR practices are
consistent across the globe. This will also allow them to learn from local HR managers regarding ways to
modify and improve existing practices.
 It faces complications that arise as each country possess unique political policies, economic situations,
social and cultural norms, and technological capacities.

Ways of Staffing an International Operations (Snell, et al, 2016)

When a company expands globally, HR managers are generally responsible for ensuring that operations are staff
with the right people. There are three main ways a company can staff an international operation.
1. The company can send people from its home country. These employees are often referred to as
expatriates, or home-country nationals. Expatriates are employees working and living in a foreign
country where they are not citizens.
2. It can hire host-country nationals, natives of the host country, to do the managing.
3. It can hire third-country nationals, natives of a country other than the home country or the host country.
Managing each set of these three different types of employees requires different approaches to recruitment,
selection, training and compensation.

Each of these three sources provides certain advantages and certain disadvantages.
 Most corporations use all three for staffing their multinational operations, although some companies
exhibit a distinct bias for one or another.
 It is important to note, however, that host countries sometimes restricts their choices by passing laws and
regulations designed to employ host-country individuals.

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  Tax incentives, tariffs, and quotas are frequently implemented by the host country to encourage local
hiring.
According to P.V. Morgan, IHRM is the interplay of three basic dimensions as follows (Mendoza and Garcia,
2019):
1. HR activities
These are broad activities that include procurement, allocation and utilization of human resources which
cover the six activities of domestic HRM (HR planning, employees hiring, training and development,
remuneration, performance management, and industrial relations).

2. Types of employees
 Expatriates or guest employees (all types of foreigners). Expatriates are employees working
and living in a foreign country where he is not a citizen.
 Inpatriates – are those host country nationals transferred to the head office of the company.
 Home country nationals/parent country nationals – are employees who are citizens of the
home country of the company.
 Host country nationals – are employees of the company’s subsidiary or branch who are citizens
of the country where the subsidiary is located.
 Third country nationals – are employees of the company or subsidiary and citizens of those
countries other than the company’s home country or host country.
3. Types of countries – three national of country categories involved in IHRM activities are:
 The host country where the subsidiary may be located.
 The home country where the company has its head office.
 Other countries that may be the source of labor or finance.

Three main issues in IHRM: (Henry (1994) as cited by Mendoza and Garcia, 2019)
1. The management and development of expatriates—selection, training, compensation, and repatriation in
case of expatriate’s failure to meet the standards of his employment.
2. The internationalization of management throughout the organization (host country, parent country, and
other third countries).
3. The need to internationalize the whole organization by creating a new corporate culture reflecting the
need for greater international experiences across the whole organization.
Other issues (Mendoza and Garcia, 2019) are:
 Deployment in getting the right skills to the right place in the organization regardless of geographic
location.
 Managing international assignments.
 Employee and family adjustment in the country of destination.
 Culture differences.
 Language and communication.
 Worldwide environment variation.

Strategies for managing global workforce:

1. Deal with changing demographics
2. Understand local cultures
3. Build global leaders
4. Compliance to local laws and regulations

Trends and Future Challenges of International HRM (Mendoza and Garcia, 2016)

Trends:
 Global business processes re-design and continuous search to make things better.

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  Absorption of acquired business, merging of operations on a global scale, forming of strategic integration
teams, and attention to develop and harmonize core HR processes among businesses.
 Rapid start-up of international operations and organization as they mature in the business life cycle.
 Changing capabilities of international operations and greater complexity.
 Need to capitalize on the potential that technology can assist HR through shared services, on a global
basis, while ensuring that local and cultural insights are duly considered when needed.
 Learning through informal and formal global HR networks.
 Identify problems faced by HR professional amidst changes in decentralization or centralization of
businesses owned across the globe.
Future Challenges:
 Employee and family adjustments
 Selecting the right person for the foreign assignment
 Handling multi-cultural and diverse workforce
 Retaining talents
 Providing HR services that are cost-effective

References:

Mendoza, Ernesto H., and Garcia, Lorna, S.P., (2019). Human Resource Management: Current Directions and
New Challenges with Overview of International HRM, Unlimited Books Library Services & Publishing Inc.
Snell, Scott A., Morris, Shad S., and Bohlander, George W. (2016). Managing Human Resources. 17th ed.
Cengage Learning.