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INTERNATIONAL HUMAN RESOURCE MANAGEMENT (IHRM)

Boxall, P. (1992) defined International Human Resource Management (IHRM) as
'concerned with the human resource problems of multinational firms in foreign
subsidiaries (such as expatriate management) or more broadly, with the unfolding
HRM issues that are associated with the various stages of the internationalisation
process. (Boxhall, P. 1992). Mark Mendenhall (2000) sought to be more specific by
outlining a number of criteria relevant to a definition of IHRM.IHRM is concerned
with HRM issues that cross national boundaries or are conducted in
locations other than the home country headquarters. IHRM is concerned with the
relationships between the HRM activities of organisations and the foreign
environments in which the organisations operate. IHRM includes comparative HRM
studies; e.g. differences in how companies in Japan, Thailand, Austria and
Switzerland plan for upgrading of employee skills and so on. Importance of IHRM.
The importance of international human resource management is getting increase
everyday as we have globalisation and internationalisation over the world. As a
result, numbers of the multinational companies are getting increase. According to
Brewster et al. (2007), the
multinational companies are increasing and there is economic dominance as 80% of
the industrial output for the world is produce by the world's 1,000 largest companies.
Brewster et al. (2007) also mentioned that as the number of multinational company
increases, global transferring is increasing such as sending works between team
members of the company based everywhere over the world. In addition, through this
trend, diversity is increasing within the organisation and the multiculturalism must be
carefully considered by the organisation to utilise its human resources effectively in
their organisation. The one of crucial role of human resource manager is developing
effective human resource management policies and practices for organisation such as
recruitment, reward, training, development, flexibility, work-life balance, employee
relations and communications (Brewster et al, 2007). However, these policies and
practices can be varied between national cultures. Rosenzweig and Nohria (1994)
argued 'that HR is the area of management most likely to be subject to national
differences' (Cited in Brewster et al, 2007).
In these days, many large companies are trying to expand the company from their
own country of origin to all over the world. These multinational companies are all
facing same issues, which are developing policies and practices for the human
resource management in their subsidiary overseas operations. In this paper, as a
senior human resource manager of a multinational company in the Great Britain, will
be discussed the main factors which will be considered while developing policies and
practices for subsidiary in Latin America and also differences of policies and
practices between the UK and the Latin America subsidiary operations.
Human Resource Management Features
Human Resource Management is a process of bringing people and organizations
together so that the goals of each are met. The various features of HRM include:
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 It is pervasive in nature as it is present in all enterprises.

 Its focus is on results rather than on rules.
 It tries to help employees develop their potential fully.
 It encourages employees to give their best to the organization.
 It is all about people at work, both as individuals and groups.
 It tries to put people on assigned jobs in order to produce good results.
 It helps an organization meet its goals in the future by providing for competent and
well-motivated employees.
 It tries to build and maintain cordial relations between people working at various
levels in the organization.
 It is a multi-disciplinary activity, utilizing knowledge and inputs drawn from
psychology, economics, etc.

International Human Resource Management: Nature and Scope

Human Resource Management is a process of bringing people and organizations
together so that the goals of each are met. The various features of HRM include:
 It is pervasive in nature as it is present in all enterprises.
 Its focus is on results rather than on rules.
 It tries to help employees develop their potential fully.
 It encourages employees to give their best to the organization.
 It is all about people at work, both as individuals and groups.
 It tries to put people on assigned jobs in order to produce good results.
 It helps an organization meet its goals in the future by providing for competent and
well-motivated employees.
 It tries to build and maintain cordial relations between people working at various
levels in the organization.
 It is a multi-disciplinary activity, utilizing knowledge and inputs drawn from
psychology, economics, etc.
The scope of HRM
1. Personnel aspect-This is concerned with manpower planning, recruitment,
selection, placement, transfer, promotion, training and development, layoff and
retrenchment, remuneration, incentives, productivity etc.
2. Welfare aspect-It deals with working conditions and amenities such as canteens,
crunches, rest and lunch rooms, housing, transport, medical assistance, education,
health and safety, recreation facilities, etc.
3. Industrial relations aspect- These covers union-management relations, joint
consultation, collective bargaining, grievance and disciplinary procedures, settlement
of disputes, etc
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Functions of IHRM
Globalization, the process of integrating a business's operations and strategies across
a wide array of cultures, products and ideas, is having an impact on the role of human
resource managers. Once concerned with the impact of local issues on employees,
human resources must now consider the effects of workforce diversity, legal
restrictions and the interdependence between training and professional development
on the organization. As such, the five main functions of global human resource
management are vital concepts to the strategic operation of a business.

Recruitment
Attracting, hiring and retaining a skilled workforce is perhaps the most basic of the
human resources functions. There are several elements to this task including
developing a job description, interviewing candidates, making offers and negotiating
salaries and benefits. Companies that recognize the value of their people place a
significant amount of stock in the recruitment function of HR. There is good reason
for this -- having a solid team of employees can raise the company's profile, help it to
achieve profitability and keep it running effectively and efficiently.

Training
Even when an organization hires skilled employees, there is normally some level of
on-the-job training that the human resources department is responsible for providing.
This is because every organization performs tasks in a slightly different way. One
company might use computer software differently from another, or it may have a
different timekeeping method. Whatever the specific processes of the organization,
human resources have a main function in providing this training to the staff. The
training function is amplified when the organization is running global operations in a
number of different locations. Having streamlined processes across those locations
makes communication and the sharing of resources a much more manageable task.

Professional Development
Closely related to training is HR's function in professional development. But whereas
training needs are centered around the organization's processes and procedures,
professional development is about providing employees with opportunities for growth
and education on an individual basis. Many human resource departments offer
professional development opportunities to their employees by sponsoring them to
visit conferences, external skills training days or trade shows. The result is a win-win:
it helps the employee feel like she is a vital and cared-for part of the team and the
organization benefits from the employee's added skill set and motivation.

Benefits and Compensation

While the management of benefits and compensation is a given for human resources,
the globalization of companies in the twenty-first century has meant that HR must
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now adapt to new ways of providing benefits to an organization's employees. Non-

traditional benefits such as flexible working hours, paternity leave, extended vacation
time and telecommuting are ways to motivate existing employees and to attract and
retain new skilled employees. Balancing compensation and benefits for the
organization's workforce is an important HR function because it requires a sensitivity
to the wants and needs of a diverse group of people.

Ensuring Legal Compliance

The final function of human resource management is perhaps the least glamorous but
arguably of utmost importance. Ensuring legal compliance with labor and tax law is a
vital part of ensuring the organization's continued existence. The federal government
as well as the state and local government where the business operates impose
mandates on companies regarding the working hours of employees, tax allowances,
required break times and working hours, minimum wage amounts and policies on
discrimination. Being aware of these laws and policies and working to keep the
organization completely legal at all times is an essential role of human resources.

Differences between domestic HRM and International HRM (IHRM)

are summarized below:

 Domestic HRM is done at national level and IHRM is done at international level.
 Domestic HRM is concerned with managing employees belonging to one nation
and IHRM is concerned with managing employees belonging to many nations (Home
country, host country and third country employees)
 Domestic HRM is concerned with managing limited number of HRM activities at
national level and IHRM has concerned with managing additional activities such as
expatriate management.
 Domestic HRM is less complicated due to less influence from the external
environment. IHRM is very complicated as it is affected heavily by external factors
such as cultural distance and institutional factors.

IHRM and training and development

Training and development increases in complexity as MNEs move abroad.
Types of training and development depend on a number of factors:
The degree to which management is centralized.
The types of workers employed in subsidiaries or joint ventures.
The importance of branding, and the extent to which employees are expected to
reflect the brand.
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The cultural expectations of training.

In a global company, the training may well be centralised so that suppliers,
employees and distributors are aware of the brand image that needs to be
communicated.
E.g. in Ford training programmes are set up centrally, and then translated and
delivered to all main suppliers, subsidiaries and distributors. If, however, a more
polycentric approach is taken, then the training may well be far more local, and more
in line with the local culture

International Human resource management: Performance management

Performance management (PM) is a very important process of human resource
management (HRM), in general. It implies an assessment of current or previous
results or performance of the employee, team or the whole organization. It is a base
for many business practices related to HRM: the need for staff training, new
recruitment, career development, rewarding, etc. A wide literature sources
emphasized that PM is a complex process, especially when the global market is in the
scope of the research
International Human resource management: Compensation
Let's start our discussion of Compensation Management with a simple question:
"What is compensation?" In very simple terms, compensation is the results or
rewards that the employees receive in return for their work. Compensation includes
payments like bonuses, profit sharing, overtime pay, recognition rewards and sales
commission, etc.
Compensation can also include non-monetary perks like a company-paid car,
company-paid housing and stock opportunities. Compensation is a vital part of
human resource management, which helps in encouraging the employees and
improving organizational effectiveness. From a manager's point of view, the
compensation package offered to a company's employees is essential not only
because it costs money, but because it is likely to be the primary reason the
employees work for the firm.
Compensation packages with good pay and advantages can help attract and retain the
best employees. A quick survey of employees about compensation is likely to expose
an expectation that wages are fair and cover basic living expenses, keep up with
inflation, leave some money for savings (perhaps for retirement) and leisure,
increment over time. A company's compensation scheme also informs a great deal
about the firm's values and cultures. Employees often look at what a company pays
rather than what it says. In many aspects, people behave as they are rewarded.
A compensation scheme projects what the company expects of its employees. For
example, if quality is an essential value, then it should be implemented through some
element of the total compensation system.
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International Human resource management: Employee relations

Human resource management and employment relations are at the heart of any
modern
organisation. Our Human Resource Management and Employment Relations major
focuses on understanding people and relationships at work – what makes
organisations work, what motivates employees, and what the future of work could be.
You explore how employees, employers, government and trade unions shape people‘s
experience of work and the outcomes from work. Choose from a wide range of
papers to tailor your study to your interests. You can investigate the relationship
between strategic human resource management and organisational performance,
inequalities in work and organisations, and ways to build inclusiveness in
organisational life. You can also explore employment regulation issues, negotiation
and conflict management, strategic career management; and work- related injuries
and illness, and how to prevent them.

Approaches to international policy across countries

Human resource policies are the formal rules and guidelines that businesses put in
place to hire, train, assess, and reward the members of their workforce. These
policies, when organized and disseminated in an easily used form, can serve to pre-
empt many misunderstandings between employees and employers about their rights
and obligations in the business place. It is tempting, as a new small business owner,
to focus on the concerns of the business at hand, and put off the
task of writing up a human resource policy. All business analysts and employment
lawyers will advise a new business owner to get a policy down on paper, even if it is
a simple one drafted from a boilerplate model. Having policies written is important so
that it is clear to all what the policies are and that they are applied consistently and
fairly across the organization. Moreover, when issues concerning employee rights and
company policies come before federal and state courts, it is standard practice to
assume that the company's human resource policies, whether written or verbal, are a
part of an employment contract between the employee and the company. Without
clearly written policies, the company is at a disadvantage. Small businesses—and
especially business startups—can not afford to fritter away valuable time and
resources on drawn-out policy disputes or potentially expensive lawsuits. Having a
human resource policy in place from the start can help to avoid this situation. The
business owner who
takes the time to establish sound, comprehensive human resource policies will be far
better equipped to succeed over the long run than the business owner who deals with
each policy decision as it erupts. The latter ad hoc style is much more likely to
produce inconsistent, uninformed, and legally questionable decisions that may cripple
an otherwise prosperous business. For as many small businesses consultants state,
human resource policies that are inconsistently applied or based on faulty or
incomplete data will almost inevitably result in declines in worker morale,
deterioration in employee loyalty, and increased vulnerability to legal penalties. To
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help ensure that personnel management policies are applied fairly, business owners
and consultants alike recommend that small business enterprises produce and
maintain a written
record of its HR policies and of instances in which those policies came into play.

International Recruitment and Selection Process

while recruiting people for international operations, the international HR managers
must identify the global competitiveness of the potential applicants at the time of the
recruiting process. It is essential that the workforce of an international organization is
aware of the nuances of international business. Understandably, the company must
keep international knowledge and experience as criteria in the recruitment and
selection process. Besides, the international HR department must have a fairly good
idea about the skills and availability of human resources in different labour markets
in the world. The HR department must have the capacity to foresee the changes in
these markets and exploit those changes productively. A truly international HR
department would insist on hiring people from all over the world and place them
throughout the international business operations of the organization.
Approaches to Recruitment in IHRM
Though the general aim of any recruitment policy is to select the right people for the
right task at the right time, the HR department of international companies may adopt
one of the following three specific approaches available for recruiting employees for
global operations.
Ethnocentric Approach
When a company follows the strategy of choosing only from the citizens of the parent
country to work in host nations, it is called an ethnocentric approach. Normally,
higher-level foreign positions are filled with expatriate employees from the parent
country. The general rationale behind the ethnocentric approach is that the staff from
the parent country would represent the interests of the headquarters effectively and
link well with the parent country. The recruitment process in this method involves
four stages: self-selection, creating a candidate pool, technical skills assessment, and
making a mutual decision. Self-selection involves the decision by the employee about
his future course of action in the international arena. In the next stage, the employee
database is prepared according to the manpower requirement of the company for
international operations. Then the database is analysed for choosing the best and most
suitable persons for global assignments and this process is called technical skills
assessment. Finally, the best candidate is identified for foreign assignment and sent
abroad with his consent.
The ethnocentric approach places natives of the home country of a business in key
positions at home and abroad. In this example, the U.S. parent company places
natives from the United States in key positions in both the United States and Mexico.
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Summarilly; Ethnocentric Approach organizations believe that the employees of

home country nationals can perform better to fulfill the organization ‘s mission,
vision, and objectives, so all the key managerial positions of the subsidiary are filled
with expatriates from the home country.
Advantages of ethnocentric Approach
 Organization ‘s culture can be easily adapted to all the subsidiaries with the help of
key managerial decisions such as vision, mission, and objectives.
 Possible to eliminate communication barriers between the headquarters and
subsidiaries.
 Proper control is possible with the ethnocentric approach.
 The parent company can monitor the operations of the subsidiaries effectively.
 Better coordination of activities between the parent company and subsidiary are
possible.
Disadvantages
 Need to pay more for the expatriates from the home country.
 Cross-cultural variations may lead to clashes between the various levels of the
employees.
Host country national employees may get disappointed by losing the key managerial
roles.
 The subsidiary may lose skilled and experienced employees due to the ethnocentric
approach.
 Expatriates from the home country may not aware of the local values and beliefs,
so cultural clashes may arise and may show an effect on the business.

Polycentric Approach
When a company adopts the strategy of limiting recruitment to the nationals of the
host country (local people), it is called a polycentric approach. The purpose of
adopting this approach is to reduce the cost of foreign operations gradually. Even
those organizations which initially adopt the ethnocentric approach may eventually
switch over lo the polycentric approach. The primary purpose of handing over the
management to the local people is to ensure that the company understands the local
market conditions, political scenario, cultural and legal requirements better.
The companies that adopt this method normally have a localized HR department,
which manages the human resources of the company in that country. Many
international companies operating their branches in advanced countries like Britain
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and Japan predominantly adopt this approach for recruiting executives to manage the
branches."
The polycenlric approach uses natives of the host country to manage operations in
their country and natives of the parent country to manage in the home office. In this
example, the Russian parent company uses natives of Nigeria to manage operations at
the Nigeria subsidiary. Natives of Russia manage the home office.
Summarily; in polycentric approach, all the key managerial positions are filled with
the employees of the host country nationals. Many companies are adopting this
approach because they believe that host country nationals can help in fulfilling the
objectives of the organizations with a better understanding of the local culture,
beliefs, and values. Here subsidiary is given freedom to take decisions and formulate
strategies according to the local business environment and vision and mission of the
headquarters.
Advantages
 Host country managers can analyse and understand the local markets and local
people
 Better coordination with the business environment is possible, both internal and
external.
 No difficulty arises due to cultural issues.
 It creates job satisfaction and job enrichment to the host country nationals.
 Hiring host country nationals is less expensive than hiring expatriates.
 Local market knowledge of the host country nationals enables them to take
strategic decisions.
Disadvantages
It may not always create a scope of better coordination between headquarters and
subsidiaries.
Quick control of operations is not possible because of the key managerial positions
are occupied by the host country nationals.
 Though the host country managers follow the vision and mission of the
organization, then also errors may occur in the fulfillment of the standards of
organization culture.

Geocentric Approach
When a company adopts the strategy of recruiting the most suitable persons for the
positions available in it, irrespective of their nationalities, it is called a geocentric
approach. Companies that are truly global in nature adopt this approach since it
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utilizes a globally integrated business strategy. Since the HR operations are

constrained by several factors like political and ethnical factors and government laws,
it is difficult to adopt this approach. However, large international companies
generally adopt the geocentric strategy with considerable success.
For international recruitment, especially on foreign soil, organizations generally use
manpower agencies or consultants with international connections and repute to
source candidates, in addition to the conventional sources. For an effective utilization
of the internal source of recruitment, global companies need to develop an internal
database of employees and an effective tracking system to identify the most suitable
persons for global postings.
The geocentric approach uses Ihe best available managers for a business without
regard for their country of origin. In this example, the UK parent company uses
natives of many countries at company headquarters and at the Nigeria subsidiary.
Summarily; in geocentric approach, organizations hire neither the home country
nationals nor the host country nationals preferably. They recruit employees on the
basis of the concept right person for the right job. Here organizations hire right
persons or suitable employees for the effective running of the business operations,
irrespective of the nationality. Geocentric approach facilitates competitive advantage
by hiring most talented and eligible people.
Advantages
 The geocentric approach creates a scope to hire world‘s best talented and skilled
employees.
 It facilitates competitive advantage and helps in reaching the market empire
position.
 Hiring most talented and eligible people can fulfill the objectives of the
organization effectively.
 This approach helps in reducing the unfair treatments and clashes in the
organization due to the favouritism towards nationality.
Disadvantages
 Hiring according to geocentric approach is expensive.
 Chance of cross-cultural clashes become high
 It may not always facilitate better coordination and control of the operations of the
organization.
 Difficult to monitor and control the operations
 Organizations need to spend more on expatriate relocation allowance.
 High cross-cultural variations arise. Expatriate training and development
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Regiocentric Approach
Company's international business is divided into international geographic regions.
The regiocentric approach uses managers from various countries within the
geographic regions of business. Although the managers operate relatively
independently in the region, they are not normally moved to the company
headquarters.
The regiocentric approach is adaptable to the company and product strategies. When
regional expertise is needed, natives of the region are hired. If product knowledge is
crucial, then parent-country nationals, who have ready access to corporate sources of
information, can be brought in.
One shortcoming of the regiocentric approach is that managers from the region may
not understand the view of the managers at headquarters. Also, corporate
headquarters may not employ enough managers with international experience.
The regiocentric approach places managers from various countries within geographic
regions of a business. In this example, the U.S. parent company uses natives of the
United States at company headquarters. Natives of African countries are used to
manage the Nigeria subsidiary.
Finally; While hiring employees for international assignments, the organization needs
to provide better training for the employees. The skill set is not only the constraint to
decide the training needs, and it is necessary for all the levels of employees to fit in
the international environment and culture. Expatriates may face problems with the
local language, culture, and beliefs of the local people, managing personal and family
life in the completely new environments. Proper training and development motivate
the employees to perform better in achieving the organization ‘s objectives
effectively.
International human resource activities:
International human resource activities include major operative human resource
functions such as procurement, which involves human resource planning and
induction. The second major activity is allocation; it involves the plan for using
human resources among various subsidiaries or projects. Effective utilization of
human resources is the third human resource activity and helps in maximizing the
skills and efficiency of the human resources and productivity.
The activities of international human resource activities cover all the major
activities like HR planning, recruitment, selection, orientation, placement, training &
development, remuneration, and performance evaluation.
Categorization of countries in the concept of IHRM
In the concept international human resource management, the countries having
headquarters and subsidiaries are categorized as follows.
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 Home country: Where the headquarters is located

 Host country: Where the subsidiary is located
 Third/other countries: These are the sources of finance and human resources
Types of employees in IHRM
The name international human resource management itself indicates that human
resources are recruited from various countries. Here nationals of various countries
contribute their skills and efficiently for the growth of the organization. They are
mainly three types, parent or home country nationals, host country nationals, and
third country nationals. These three types are differentiated on the basis of citizens of
headquarters of the company, citizens of the subsidiaries of the company, and citizens
of various countries.
Home country or Parent Country Nationals (PCNs)
Home country nationals are the employees of the organization and these are the
citizens of the country where the headquarter is located.
Host Country Nationals (HCNs)
Host country nationals are the citizens of the country where the subsidiary is located
or when any organization recruits the nationals of the country where the subsidiary is
located.
Third-country Nationals (TCNs)
Third country nationals are the citizens of the other countries, and they are neither the
citizens of the country where the headquarters is located nor the citizens of the
country where the subsidiary
located.
Staffing Approaches
Depending on the recruitment of key managerial positions for multinational
companies, different approaches are explained.
Expatriate Selection Process
The results of the interviews indicate that the majority of the respondents (87%) still
placed extreme importance on the technical competence of their expatriates, with
(47%) acknowledging personality traits, relational abilities and motivational state to
be highly important criteria. Overall, the participating companies considered the
family situation as moderately important, language skills as somewhat unimportant
and prior expatriate experience as moderately unimportant. Therefore, the value of
language skills and prior overseas experience was dismissed by respondents as
relatively unimportant in the area of selection. However, it was noted that previous
overseas experience reduced the need for orientation.
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Responses from the interviews suggest that technical expertise and domestic track
record are by far the two most dominant selection criteria of these participating firms.
Factors such as language skills and international adaptability are of decreased
significance. However, it is important to note that almost half of the respondents did
place a high emphasis on the cultural and adaptability demands of offshore
assignments. These results show that there is a growing recognition of the importance
of human relational abilities. In fact, several respondents also acknowledged the
greater impact of cross-national assignments on spouse and family than on
expatriates. With regards to the importance of family situation, the majority of the
respondents still regarded family situation as only moderately important in the
selection criterion. However, several respondents did acknowledge that the family
situation was often responsible for the expatriate’s inability to function effectively in
a foreign environment.
Pre-departure Training
In terms of pre-departure training for expatriate assignments, the interviewees noted
that although they consider training as essential, the high costs associated with
expatriation reduced their capacity to provide formal training for expatriation.
Respondents tended to believe that ‘Training is important, but the cost benefit must
be considered’ (interviewee 6). Generally, most of the participants indicated that the
level of pre-departure training provided depended very much on the cost and the
benefit obtained from running such programs (interviewees 4,15). As a result, they
(i.e., interviewees 1, 4, 15) tend to rely on indirect forms of training, such as notes for
guidance and the provision of an internet information web-site.
These respondents also noted that their companies considered other forms of
preparation to be more cost effective. These preparatory initiatives included ‘flying
the employee and family over to location to check out if they would like to stay’
(interviewee 3). The relevance of briefings and shadowing of current incumbents was
also highlighted by the respondents. Indeed, these were more frequent practices than
the provision of formal training programs. Interviewee four indicated that this
company used the ‘immersion approach’ (Figure 1) to a limited extent for some
countries where expatriates must be fluent in language.
In this situation, they provide extensive training. This respondent added that the
expertise of the expatriate also determines the type of training.
For example, engineers and scientists would not receive the immersion approach,
whilst sales and marketing would need this more intensive training. According to
these respondents, certain jobs (e.g., marketing) require greater interpersonal
relationship with host country nationals. In contrast, Tung (1988a) indicated it
depends on other factor such as length of stay and degree of engagement. Most study
participants agreed
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that the degree of expected interaction and similarity between the home and host
cultures would predict the use of the cross-cultural training method by their employee
and his/her family (interviewees 3, 8, 10).
Interviewee two noted that training would be provided for all family members for
countries that are culturally different. Some of the respondents (interviewees 3, 5)
recognised that all families who could not speak the language would feel isolated,
and, therefore, the language survival briefing should also include the wife and
children of the expatriate. On the whole, most companies recognised the need for pre-
departure training for their expatriate and family, but the extent and coverage are
driven by the cost considerations. This primarily resulted in the adoption of less
intensive training.
Repatriation
The study results show that the majority (87%) of the participating firms provided a
specific length of posting (average of 3 years). None of the identified companies’
offered return incentive payments. The majority (87%) of the firms offered their
expatriates a mutually acceptable position on their return from an assignment.
Notably a large number (87%) of these companies did not provide any re-entry
training for their returned expatriates, but did provide shipment of goods (87%), and
relocation benefits (67%). The majority of the interviewees indicated that their
companies provided repatriation programs but not in a formalised form.
Six of the companies (40%) promoted more than half of their expatriates on their
return home. In terms of higher responsibility without promotion for their repatriates,
only five companies offered their returned expatriates with such a position. These
expatriates were only a small minority of the total sample. Moreover, generally, all
companies reassigned their returned expatriates to a comparable or mutually
acceptable position. Furthermore, it was acknowledged by eight respondents that in
their firms (53%) nearly ten per cent of returning expatriates left the company within
six months of their return homecoming.
The repatriation programs explored in this study consisted of ten effective strategies
cited in the literature as facilitating expatriates’ return to their home country (Black
1992, Fieldman & Thomas 1992, Frazee 1997, Allen & Alvarez 1998). Overall, the
results indicated that the majority of companies provided no separate organisational
unit for their repatriates, no facilitator to identify expatriate new knowledge, no event
to welcome expatriate and family home, no post assignment interview, and no career-
counselling workshop for expatriate and family. A majority of the companies
admitted to the occasional use of a mentorship program, relocation benefits and the
utilisation of repatriates as trainers.
However, most companies did provide the shipment of personal goods and a HR
service to support the career tracking of their expatriates. Many of the study
respondents acknowledged the lack of adoption of the ten strategic repatriation
programs explored in the research and stated that the reasons were due to cost, and
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were unaware of the existence of these repatriation programs. Some of the other
respondents reported that the repatriation programs they offered were not formalised
as a policy, but carried out as an ad hoc practice. It must be noted that when asked,
the majority of these companies acknowledged that the spouse and the family
readjustment were given little attention. The results of this study suggest that
companies fail to plan for the repatriation of their expatriates.
Failed Assignments - Premature Return
Premature return refers to the return of expatriates before the completion of their
international assignment due to several reasons: poor performance, job
dissatisfaction, cultural shock and family dissatisfaction (Harvey 1985, McDonald
1993). The non-completion of the international assignment necessitates the
replacement of the expatriate (Bird & Dunbar 1991). Consequently, the expatriate
failure is costly and results in a crisis for the multinational corporation. The results of
the study showed that the majority (67%) of the respondents admitted that up to five
per cent of their expatriates returned prematurely from their assignments, six per cent
acknowledged ten per cent expatriate failure and 13 per cent of the participating firms
confirm that 25 per cent of their expatriates return prematurely. A high proportion of
the participating firms indicated that their expatriates generally return home for
family reasons or personal reasons (interviewees 4, 6, 8). Family situation was
suggested as playing the critical role in the premature return of expatriates. This was
particularly noted by one respondent (interviewee 3) who reported that his company
had conducted in depth studies on the adjustment of their expatriates’ wives in a
foreign environment because of the frequency of these expatriates themselves.
Failed Repatriation - Turnover Intention
More than half the respondents acknowledged that ten per cent of their expatriates are
likely to leave the organisation within six months after their return from their
overseas assignments. Some of the reasons cited for leaving included family reasons
and feelings of loss of autonomy and authority, loss of career direction and
promotional opportunities, and a feeling that the company undervalues their
international experience. In terms of promotion for returned expatriates, six of the
respondents indicated that nearly half of their returned expatriates were promoted to a
senior post and 47 per cent of the respondents acknowledged that half of their
returned expatriates were given a comparable position. Over 50 per cent of the
participating organisations provided their returned expatriates with expanded
responsibilities, without recognition of formal promotion.
Technical Ability
Personal Characteristics
A quality describes behavioural or competency-based criteria logically associated
with the successful accomplishment of important tasks/responsibilities in a particular
job. Required technical skills are sometimes found on the job description. Further job
analysis should be completed to identify the qualities not noted on a job description.
 16

Some qualities can be technical as well as personal. The following list is not intended
to be all-inclusive.
Technical
Can be general or very specific to each job.
General
 Accurate
 Computer competent
 Customer focused
 Detail oriented
 Good phone etiquette
 Manage multiple tasks
 Mechanical aptitude
 Planning ability—Sets and follows a course of action to accomplish goals.
 Project management skills
 Quality focused
Job Specific
Licensed electrician
 Programs CNC machines
 Read/interpret blueprints
Soft Skills
 Analytical
 Attention to detail
 Decisive—Makes decisions, renders judgment, takes action.
 Impact—Good first impression, confidence, commanding respect.
 Independent/self-motivated
 Leadership—Utilizes skills and methods to develop and guide direct reports
towards
goals. Good delegation to and utilization of direct reports.
 Oral Communication—Individual and group situations.
 Organized
 17

 Persuasive—Obtains agreement, cooperation, or acceptance with or without

authority.
 Presentation skills
 Problem solver
 Sensitive to organizational objectives—Sees the bigger picture and /or overall
impact and implication of decisions.
 Team player
 Written communication—clear expression in writing
Soft Skills
 Assertive Cooperative
 Creative
 Flexible—Able to adapt or modify behaviour to reach a goal.
 Good judgment—Makes quality decisions based on logic and factual information.
 Hardworking
 Honest
 Initiative/Drive—Takes action to achieve goals. A self-starter.
 Motivated
 Quick learner
 Reliable/Punctual
 Resourceful
 Self-confident
 Sincere
 Stable
 Tenacious—Stays with a plan of action until completed or it is no longer
attainable.
 Tolerates stress—Stable performance under pressure.
"More Than a Gut Feeling"
1. Plan the interview.
a. Thoroughly review job requirements.
b. Ask what skills are important for good performance on the job.
2. Create your interview plan.
 18

a. Formulate job-related questions that will help the interviewee give behavioural
examples.
b. Write your questions out so that you will ensure to cover all main points in the
interview.
3. Arrange for an interview environment.
a. Be sure that there are no interruptions.
b. See that the interviewee is comfortable.
c. Plan for enough time—one hour is desirable.
4. Conduct the interview.
a. Use rapport-building questions.
b. Ask open-ended questions.
c. Allow silence.
d. Seek disconfirming evidence.
e. Control the interview.
f. Gain behavioural examples.
5. Use intuition to help you ask better questions.
a. Validate or disconfirm your "gut feelings."
b. Protect other people from your hidden biases or prejudices.
6. Rate skills.
a. One behavioural example may provide evidence for or against several different
skills.
b. No one is absolutely perfect and no one is absolutely bad!
c. Ask yourself if you have enough information to do a good rating and allow for
unmeasured skills.
International crises experienced by multinational corporations include both the
premature return of expatriates due to failed assignments and the poor retention of
returned expatriates due to failed repatriation. To reduce the direct and indirect costs
inherent with expatriate failure, multinational corporations are striving to improve
their capability to manage their expatriates before, during and after international
assignments. This article highlights these issues and discusses the challenges for
human resource professionals when managing expatriates. The results of the study
presented in this paper suggest that the management of international human resources
 19

is increasingly being acknowledged as a major determinant of success or failure in

international business. It concludes by proposing that a well-managed and proactive
response to an international crisis may help an organisation retain experienced
international employees.
International Selection process
Even though cultural differences influence the selection procedure to some extent,
organizations tend to follow similar criteria and methods worldwide. This is due to
the fact that the end objective of any selection process is to choose the most capable
persons for the job. The selection criteria for international jobs usually revolve
around the five core areas of behaviour, attitudes, skills, motivation and personality.
More specifically, the focus of selection for international operations normally
includes: cultural adaptability, strong communication skills, technical competence,
professional or technical expertise, global experience, country-specific experience,
interpersonal skills, language skills, and family flexibility. Employers around the
world usually rank personal interviews, technical competency and work experience in
similar jobs as important criteria for selection
 highly developed technical skills
 good language and communication skills
 tolerance towards other culture, race, creed, colour, habits, and values
 high level of motivation
 stress resistance
 goal-oriented behaviour
Finally, at the time of selection for international assignments, an organization should
consider the previous overseas experience, family circumstances and cultural
adaptability level of the candidates aspiring for the global job. technical competence,
professional or technical expertise, global experience, country-specific experience,
interpersonal skills, language skills, and family flexibility. Employers around the
world usually rank personal interviews, technical competency and work experience in
similar jobs
 Cooperative
 Creative
 Flexible—Able to adapt or modify behaviour to reach a goal.
 Good judgment—Makes quality decisions based on logic and factual information.
 Hardworking
 Honest
 Initiative/Drive—Takes action to achieve goals. A self-starter.
 Motivated
 Quick learner
 Reliable/Punctual
 20

 Resourceful
 Self-confident
 Sincere
 Stable
 Tenacious—Stays with a plan of action until completed or it is no longer attainable.
 Tolerates stress—Stable performance under pressure.
"More Than a Gut Feeling"
1. Plan the interview.
a. Thoroughly review job requirements.
b. Ask what skills are important for good performance on the job.
2. Create your interview plan.
a. Formulate job-related questions that will help the interviewee give behavioral
examples.
b. Write your questions out so that you will ensure to cover all main points in the
interview.
3. Arrange for an interview environment.
a. Be sure that there are no interruptions.
b. See that the interviewee is comfortable.
c. Plan for enough time—one hour is desirable.
4. Conduct the interview.
a. Use rapport-building questions.
b. Ask open-ended questions.
c. Allow silence.
d. Seek disconfirming evidence.
e. Control the interview.
f. Gain behavioural examples.
5. Use intuition to help you ask better questions.
a. Validate or disconfirm your "gut feelings."
b. Protect other people from your hidden biases or prejudices.
6. Rate skills.
a. One behavioural example may provide evidence for or against several different
skills.
b. No one is absolutely perfect and no one is absolutely bad!
c. Ask yourself if you have enough information to do a good rating and allow for
unmeasured skills.
International crises experienced by multinational corporations include both the
premature return of expatriates due to failed assignments and the poor retention of
returned expatriates due to failed repatriation. To reduce the direct and indirect costs
inherent with expatriate failure, multinational corporations are striving to improve
their capability to manage their expatriates before, during and after international
assignments. This article highlights these issues and discusses the challenges for
human resource professionals when managing expatriates. The results of the study
presented in this paper suggest that the management of international human resources
 21

is increasingly being acknowledged as a major determinant of success or failure in

international business. It concludes by proposing that a well-managed and proactive
response to an international crisis may help an organisation retain experienced
international employees.
Introduction To Family Adjustments
As organisations become globalised, there is an increasing challenge to use
expatriates on international assignments to complete strategically critical
tasks (Gregersen & Black 1996, Brewster 1998, Downes & Thomas 1999).
Multinational corporations (MNCs) use expatriates, not only for corporate
control and expertise reasons in vital global markets, but also to facilitate
entry into new markets or to develop international management competencies
(Bird & Dunbar 1991, Boyacigiller 1991, Rosenzweig 1994, Shaffer,
Harrison & Gilley 1999, Forster 2000). While it is recognised that Human Resource
Management (HRM) problems are more complex in the international environment,
there is also increased evidence to suggest that the management of international
human resources is increasingly being acknowledged as a major determinant of
success or failure in international business (Tung 1984, Dowling 1999, Hiltrop 1999).
For
renowned and established MNCs, failure to be able to communicate and
coordinate their activities in international business has the potential to plunge
them into a crisis. The crises confronting MNCs include failed assignments
due to premature return of expatriates and the loss of their returned expatriates due to
poor repatriation. These crises, due to poor expatriate
management, can, therefore, threaten the organisation ‘s performance and
capabilities in the international arena. Hence, to avoid a crisis in expatriate
management is threefold. The first challenge for international human resource is
planning effectively for the selection of expatriates for overseas assignments. The
second, return of expatriates has to be attended and the subsequent job assignment for
returned expatriate in their home country is a priority for managerial attention.
Essentially, the primary crisis management roles of international human
resource (IHR) professionals are those of record custodian, crisis
management team member, communicator, and contributing writer to the
emergency plan (Williamson 1991). This multifaceted role of IHR includes
providing professional counselling to help employees and their families to
deal with the psychological problems associated with a hostage or an
evacuation situation, to concentrate on the well-being of their workforce, but
they also addressed compensation and benefits issues, reassignment issues,
legal issues, health, safety, and security issues.
It is widely acknowledged in the relevant literature (Smith & Sipika
1993, Hickman & Crandall 1997, Coombs 2001) that the process of crisis
management entails three main phases. These phases are conceptualised
as (1) Preparedness, which is the period of preparing plans and
procedures for addressing a crisis; (2) Responsiveness, or the actual
 22

dealing with the crisis; and (3) Recovery, during which the organisation
returns to normal operations as quickly as possible. These three phases
are considered as sequential phenomena in a continuous cycle so that
the Recovery phase, which follows the Responsiveness phase, also
precedes the Preparedness phase. In this paper, the Responsiveness of
expatriate crisis management is delineated in an auto reflective narrative
design that utilised the responses of 15 expatriate managers. The data
provided by the managers are considered within the frameworks of the
Recovery phase and the Preparedness phase to reinforce how
corporate HRM policies and practices might facilitate better
management of the expatriate crises.
Managing Expatriate Crises
International crises experienced by MNCs include premature return of their
expatriates due to failed assignments and poor retention of their returned
expatriates due to failed repatriation. Researchers have analysed the causes of
failure in overseas assignments and have introduced Human Resource (HR)
practices that would help organisations to select, develop, and retain
competent expatriates (Oddou 1991, Arthur & Bennett 1995, Stroh, Gregersen &
Black 1998, Hiltrop 1999, Riusala 2000, Varner 2002).

Consequently, multinational corporations are striving to improve their

capability in managing human resources internationally. Important features of these
initiatives include (1) the nature and length of the planning for the selection and
training of expatriates for overseas assignments, (2) the return
of expatriate, and (3) the subsequent assigned work for these repatriates in
the home country (Punnett & Ricks 1997, Anderson 2001, Lazarova 2001).
Failed Assignments due to Premature Return of Expatriates
A prominent concern in the international recruitment and selection literature
is that of expatriate failure (Adler 1981, Mendenhall & Oddou 1991,
Feldman & Tompson 1993, Harvey 1993, Riusala 2000). This expatriate
failure becomes an international crisis for the MNC. Several studies have
identified the reasons behind the failure. For instance, premature return of
expatriates and the lack of cross-cultural adjustment by expatriates, their
spouse or family are some identified features (Black & Gregersen 1991,
Black 1992, Shaffer et al. 1999, Riusala 2000) as well as poor performance
(Fieldman & Thomas 1992, Stening & Hammer 1992, Feldman & Tompson
1993, Hodgetts 1993, Naumann 1993, Clark, Grant & Heijltjes 2000) that can
arise during an international assignment. Indeed, research conducted by
Black and Gregersen (1997) indicates that 10 to 20 per cent of United States
(U.S.) expatriates sent overseas return prematurely due to dissatisfaction with
their job or the impact of culture shock. And one-third of those who stayed
for the duration did not perform satisfactory to the expectations of their
organisations. Moreover, when an international assignment is not completed,
 23

necessitating the replacement of the expatriate (Bird & Dunbar 1991, Swaak
1995, Pucik & Saba 1998), the costs of failure to the MNCs are both direct
and indirect. The direct cost includes salary, training costs, and travel and
relocation expenses. The indirect cost could be a loss of market share,
difficulties with host government and demands that parent country nationals
be replaced with host country nationals (Dowling, Schuler & Welch 1994,
Stone 1994, Forster 2000). Expatriate failure is primarily caused by error in selection
(Adler 1981, Tung 1981, Arthur & Bennet 1995, Harvey & Noviceivic 2001).
Historically, the selection of expatriates has been based on technical competence
(Katz & Seifer 1996), neglecting other important interpersonal factors of expatriates
(Mendenhall, Dunbar & Oddou 1987, Suutari & Brewster 1998). For
instance, Clarke and Hammer (1995) found that interpersonal skills assist in
the cultural adjustment of the expatriate and his or her family is a managerial
function worthy of greater consideration. A review of extant literature on expatriate
selection identified other essential traits as predictors of expatriate
success and these are addressed.
Nature of Planning: Expatriate Selection
Within the abundant research on expatriate managers, certain selection
characteristics or traits have been identified as predictors of expatriate
success. These include technical ability, managerial skills, cultural empathy,
adaptability, diplomacy, language ability, positive attitude, emotional
stability, maturity and adaptability of family. One of the earliest reports was
provided by Tung (1987), who examined expatriate selection practices across
80 U.S. MNCs, and subsequently, identified four general categories which
may contribute to expatriate success.
These are broadly described as;
(1) technical competence on the job, (2) personality traits or relational abilities,
(3) environmental variables, and (4) family situation. This is further
supported by Ronen‘s (1989) model that incorporates the dimensions of
expatriate success identified by Tung (1981).
Ronen (1989), describes five categories of attributes of success: (1) job factors, (2)
relational dimensions, (3) motivational state (4) family situation, and (5) language
skills. The five categories and their specific aspects are outlined

Differences in HR practices between UK and USA

Two countries separated by a common language‘, is an often used quote to describe

the
differences between the UK and the USA! The quote serves as a reminder that whilst
we are very much culturally alike and we approach business in very similar ways
there are often some important variations within the how. When setting up a company
 24

in the USA it is even more vital to get your HR right from the beginning as it often
prevents a lot of problems occurring further down the line. Managing complex HR
problems locally is difficult enough but over time zones, often by phone is a major
headache that you can do without!
Some Key Differences in UK and US HR Practices
The tables below illustrate a couple of key differences in UK and US employment
practices.
In the UK it is common practice to provide a new hire a contract of employment, an
often-lengthy legal document that the employee needs to sign. In the US employment
is considered At ‘Will‘. In this case the employer and employee can terminate the
relationship at any time and without cause. A contract is usually only used for Senior
Executive levels. A contract is rarely referred to in the US hiring process. What is key
is having an up-to-date HR handbook, which covers your HR policies and processes
that is legally compliant in the USA. Statutory Time vs. Paid Time Off
Another major difference is employee benefits. For example, in the UK there is the
NHS, which offers free health cover. The US does not have this level of cover so
benefits become a large component of an attractive offer for a new employee. It is
important to seek specialist help in developing your offer for prospective employees.
These examples serve to illustrate that things are not straight forward when setting up
your company in the USA, however with the right advice it is easy to avoid common
pitfalls and enable you to focus on the major goals of your business and not be
distracted by unnecessary HR issues. By comparing the HRM practices in Indian and
European MNE subsidiaries located in four of the Southern African Development
Community countries, this paper tests the relevance of the country-of-origin effect
and analyses the strength of institutional and firm-level influences. Examining data
from 865 MNE subsidiaries obtained from the World Bank enterprise survey
data, the paper finds that Indian MNEs have higher labour costs in relation to total
sales than their European counterparts, that Indian MNEs make more use of
temporary labour than their European counterparts, that Indian MNEs invest in less
training than their European counterparts. No support is found for the hypothesis that
Indian MNEs have a lower ratio of skilled workers in comparison to European-owned
subsidiaries. The study shows that country-of- origin effects are weakened if they are
not consistent with host country ideology and that as economies evolve so too do
their expectations of HR policy and practices.
International environment and components of compensation
The components of expatriate compensation vary with the domestic compensation
standards, so the organizations need to fulfill various requirements of the expatriates
while hiring. Companies need to provide housing allowance, travel allowance,
education allowance for expatriates children, relocation allowance, cost of living
adjustment packages, and currency differential packages, etc.,
Position Description:
 25

The Human Resources Manager guides and manages the overall provision of Human
Resources services, policies, and programs for a company within a small to mid-sized
company, or a portion of the Human Resources function within a large company.
The major areas the Human Resources Manager manages can include:
 recruiting and staffing;
 organizational departmental planning;
 performance management and improvement systems;
 organization development;
 employment and compliance to regulatory concerns regarding employees;
 employee onboarding, development, needs assessment, and training;
 policy development and documentation;
 employee relations;
 company-wide committee facilitation;
 company employee and community communication;
 compensation and benefits administration; employee safety, welfare, wellness
and health;
 charitable giving; and
 employee services and counseling.
The Human Resources Manager originates and leads Human Resources practices and
objectives that will provide an employee-oriented; high-performance culture that
emphasizes empowerment, quality, productivity, and standards; goal attainment, and
the recruitment and ongoing development of a superior workforce.
The Human Resources Manager is responsible for the development of processes and
metrics that support the achievement of the organization's business goals.
The Human Resources Manager coordinates the implementation of people-related
services, policies, and programs through Human Resources staff; reports to the CEO;
and assists and advises company managers about Human Resources issues.
Primary Objectives of the Human Resources Manager:
 Health and safety of the workforce.
 Development of a superior workforce.
 Development of the Human Resources department.
 26

 Development of an employee-oriented company culture that emphasizes quality,

continuous improvement, key employee retention and development, and high
performance.
 Personal ongoing development.
Responsibilities of the Human Resources Manager
Depending on the organization, the Human Resources Manager may or may not have
responsibility for community relations, philanthropic giving, company community
sports team and event sponsoring, space planning, benefits review, and
administration. Depending upon the needs of the organization, such responsibilities
may be carried out by the finance department, facilities department, marketing and
public relations, and / or administration. No matter which department bears the
leadership responsibility for the function, the Human Resources manager is closely
involved in decisions, implementation, and review.
Thus, responsibilities of the Human Resources manager may include the following.
 Development of the Human Resources Department
 Oversees the implementation of Human Resources programs through Human
Resources staff.
Identifies opportunities for improvement and resolves problems.

International Economics
International economics is a branch of economics that studies the economic
interactions between countries, including trade, finance, investment, and migration. It
analyzes how nations interact through the exchange of goods, services, and capital,
and explores the factors influencing these interactions, such as government policies,
exchange rates, and global economic institutions.
Why is international economics important?
International economics plays a crucial role in understanding and shaping the global
economy. It helps explain the benefits and challenges of international trade, the
effects of globalization on different economies, and the impact of economic policies
on domestic and foreign markets. It provides insights into how countries can achieve
economic growth, allocate resources efficiently, and address issues like income
inequality and poverty on a global scale.
What are some key concepts in international economics?
Several key concepts are central to the study of international economics. These
include comparative advantage, which examines how countries specialize in
producing goods and services based on their relative efficiencies; balance of
payments, which tracks a country’s transactions with the rest of the world, including
 27

imports, exports, and capital flows; exchange rates, which determine the value of one
currency relative to another; and trade policies, such as tariffs and quotas, which
governments implement to regulate international trade and protect domestic
industries.
It encompasses a wide range of topics and issues related to international
trade, finance, and economic policy. The analysis of these relations between nations
helps analysts, economists, businesses, and policymakers to predict its impact on
micro and macro-economic levels. Moreover, the field of international economics
continues to evolve as economic conditions change and new challenges emerge.
International economics refers to a branch of economics that examines the economic
interactions and transactions occurring between countries. Its key characteristics
include a global perspective, focusing on the cross-border exchange of goods,
services, capital, and labor. Besides, the title "father of international economics" is
often attributed to David Ricardo, a British economist who lived during the late 18th
and early 19th centuries.
Moreover, it gauges the exchange rates and tariffs, exploring the factors that
influence currency values and impact international trade and investments.
Furthermore, it analyzes the impact of global events, like financial crises or
pandemics, on national economies and international trade patterns.
A deep understanding of international economic concepts is essential for
policymakers and economists to make well-informed decisions in the complex global
marketplace.
However, the volatility of exchange rates, trade barriers such as tariffs and quotas,
political instability affecting trade policies, economic imbalances between nations,
currency risks due to fluctuations, regulatory differences, protection of intellectual
property in foreign markets, and the increasing influence of environmental concerns
such as sustainability and climate change are the critical factors in this regime.
Managing these challenges demands a comprehensive understanding of international
economics and the implementation of effective risk management strategies by
businesses.
Additionally, international economics and finance are complementary fields that
together provide an understanding of how countries interact economically on a global
scale. They are crucial for policymakers, businesses, and investors as they navigate
the complexities of the interconnected world economy. Thus, it provides insights into
how countries can benefit from cooperation and efficient resource allocation to
promote global economic growth and stability.
Components
International economics comprises the following key components, which are
essential for analyzing the complexities of the global economy:
 28

1. Global Trade: International trade and commerce involves the study of the
exchange of goods and services overseas, emphasizing concepts
like comparative advantage and trade barriers.
2. International Finance: This element focuses on the monetary and financial
interactions between countries. Thus including aspects such as exchange
rates, international monetary systems, and capital flows.
3. Globalization: It refers to the integration of economies and societies
worldwide through cross-border trade, investment, technology, and cultural
exchange.
4. Balance of Payments (BoP): BoP is a systematic record of a country's
economic transactions with the rest of the world. It includes trade
balance, foreign direct investment (FDI), and foreign financial aid.
5. Foreign Exchange Markets: The study of forex markets involves the trading
of currencies and the determination of exchange rates between different
currencies.
6. Trade Policies: These are the policies implemented by governments.
Therefore, to regulate international trade, encompassing measures like export-
import tariffs, quotas, and trade agreements.
7. Dependency Theory: As the development of a less-developed economy
depends upon its interaction with a developed economy. Hence, it focuses on
improving living standards in developing countries by understanding economic
growth, poverty, and income distribution.
8. International Organizations: Entities such as the World Bank, World Trade
Organization (WTO), and International Monetary Fund (IMF) play significant
roles in shaping international economic policies and providing financial
assistance to countries.
9. Multinational Corporations: These are large businesses that operate in
multiple countries, facing challenges related to global supply chains, currency
fluctuations, and international regulations.
Examples
Let us consider some cases where the study of international economics helps
businesses, governments, and economists in decision-making:
Example 1
Suppose the US is a leading producer of advanced technology and electronics, while
the UK specializes in the production of raw materials, such as minerals and metals.
Recognizing their comparative advantages, the two nations engage in international
trade. Hence, the US exports high-tech electronics to the UK, meeting the demand for
 29

sophisticated goods. In return, the UK exports raw materials vital for manufacturing
to the US.
Therefore, this exchange benefits both nations; the US can access essential resources
for its industries at a lower cost than if it attempted to produce them domestically,
while the UK gains access to cutting-edge technologies it might not be able to
develop on its own. The result is an efficient allocation of resources, economic
growth, and an enhanced standard of living for the citizens of both countries,
underscoring the mutual benefits derived from international economic cooperation
and specialization.
Example 2 - IMF’s SDR Boosts Global Economy
The International Monetary Fund (IMF) made its largest-ever allocation of Special
Drawing Rights (SDRs) in August 2021, injecting $650 billion into countries to aid
pandemic recovery. SDRs are reserve assets used to safeguard global stability; they
can be saved, exchanged for currencies, or spent on various needs, including vaccines
and social assistance.
A recent study shows the 2021 allocation met its objectives, benefiting all IMF
members, predominantly low-income countries. G20 countries pledged over $100
billion of SDRs to support vulnerable nations, enhancing the allocation's impact.
Low-income countries received double the allocation compared to advanced
economies, strengthening their international reserves.
Moreover, SDRs helped countries lower borrowing costs, enabling them to address
urgent needs like healthcare and vaccines. Governments used SDRs responsibly,
saving them for future shocks, spending on critical needs, and ensuring transparency.
While interest costs have risen due to higher global rates, SDRs remain a cost-
effective financing option.
Hence, international economics must evaluate future SDR allocations carefully,
considering higher interest and inflation rates. Stronger economies need to fulfill their
pledges, supporting vulnerable countries facing multiple challenges. SDRs are
valuable but not a standalone solution, complementing broader support measures
provided by the IMF, including policy advice, financial support, and technical
assistance.
Importance
International economics is indispensable for shaping global economic policies and
encouraging international cooperation. Its significance lies in the following points:
 Global Interconnectedness: In today's world, economies are highly
interconnected. Understanding international economics helps in
comprehending the complexities of global trade, finance, and investment,
which are essential aspects of the modern economy.
 30

 Trade and Development: It fosters economic growth and development by

allowing countries to specialize in what they do best and exchange goods and
services with others. It helps in creating jobs, increasing income, and
improving living standards.
 Policy Formulation: Policymakers rely on international economics principles
to make informed choices about tariffs, trade agreements, foreign aid, and
other economic policies, considering their far-reaching consequences on their
economies and the world.
 Currency Exchange: The study of exchange rates is crucial for businesses and
governments since fluctuations in exchange rates impact trade balances,
inflation rates, and overall economic stability.
 Cultural Exchange: It fosters cultural exchange by encouraging the flow of
ideas, traditions, and lifestyles between trading nations, leading to mutual
understanding and tolerance.
 Investment Opportunities: Understanding international interaction trends and
scope helps investors assess opportunities and risks in different countries,
enabling them to make informed investment decisions.
 Fosters International Trade: A fundamental aspect of international
economics, promotes economic growth by facilitating the exchange of goods
and services between nations.
 Comparative Advantage and Resource Allocation: It encourages
specialization in cross-border transactions, allowing countries to trade products
efficiently and allocate resources effectively on a global scale.
 Global Development: It provides insights into how countries, especially
developing ones, can integrate into the global economy, attract investments,
and improve their living standards.
 Global Financial Stability: It also contributes to the viability and stability of
the global financial and economic system by analyzing financial crises, capital
flows, and the impact of policies across borders.

International Financial Institution (IFI

An international financial institution (IFI) is a financial institution that has been
established (or chartered) by more than one country, and hence is subject
to international law. Its owners or shareholders are generally national governments,
although other international institutions and other organizations occasionally figure as
shareholders. The most prominent IFIs are creations of multiple nations, although
some bilateral financial institutions (created by two countries) exist and are
technically IFIs. The best known IFIs were established after World War II to assist in
 31

the reconstruction of Europe and provide mechanisms for international cooperation in

managing the global financial system.
List of International Financial Institutions
The most prominent IFIs were set up after the second World War. They were
established to aid the reconstruction of Europe and build a proper mechanism to
encourage international cooperation in managing the worldwide financial system.
Below mentioned are the eminent International Financial Institutions:
International Financial Institutions
International Monetary Fund (IMF) World Economic Forum (WEF)
World Bank World Trade Organization (WTO)
Asian Development Bank (ADB) Asia-Pacific Economic Cooperation (APEC)
Asia Pacific Trade Agreement (APTA) BRICS (Brazil/Russia/India/China/South Africa)
African Development Bank (ADB)

Now let’s understand each of the above stated IFI in detail with respect to their
objectives, functions, and importance.

International Monetary Fund (IMF)

o The International Monetary Fund, also known as IMF, promotes
financial stability and monetary cooperation in the world.
o It also looks after international trade, promotes employment and
sustainable economic growth, and helps reduce global poverty.
o The IMF is governed by and accountable to its 190 member countries.
Mission & Establishment
o The IMF was established in July 1944 at the United Nations Bretton
Woods Conference in New Hampshire, United States.
o The 44 countries in attendance sought to build a common platform for
international economic cooperation and avoid repeating the competitive
currency devaluations that led to the Great Economic Depression of
1930.
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o The primary mission of the IMF is to ensure stability of the international

monetary system of exchange rates and international payments that
enable the countries and their citizens to transact among themselves.
Reports Released by the IMF
o World Economic Outlook
o Global Financial Stability Report
o Regional Economic Reports
o Fiscal Monitor
World Economic Forum (WEF)
o The World Economic Forum engages the foremost political, business,
cultural, and other leaders of society to shape the global, regional, and
industry agendas.
o It was established in 1971 as a not-for-profit foundation as an
independent, impartial, and not tied to any special interests.
o The WEF is headquartered in Geneva, Switzerland.
o The forum strives in all its efforts to demonstrate entrepreneurship in the
global public interest while upholding the highest standards of
governance.
Reports released by the WEF
o Global Gender Gap Report
o Outlook on Global Agenda
o Global Competitive Index
o Global Information Technology Report
o Environmental Performance Index
o Inclusive Growth & Development Report
o Travel & Tourism Competitiveness Report
o Energy Transition Index
o The Global Risk Report
World Bank
o The World Bank was established at the 1944 Bretton Woods Conference
along with the IMF.
o The World Bank is headquartered in Washington D.C.
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o It is an international financial institution responsible for providing loans

to the countries for their developmental programs.
o The World Bank is like a cooperative, made up of 189 member
countries. These member countries, or shareholders, are represented by a
Board of Governors, who are the ultimate policymakers at the World
Bank.
Reports Released by World Bank
o Global Economics Prospects
o World Development Report
o Ease of Doing Business Report
o Logistics Performance Index
World Trade Organization (WTO)
o The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between the nations.
o The WTO agreements are the heart of the WTO. They are negotiated and
signed by the bulk of the world’s trading nations and ratified in their
parliaments.
o The goal is to ensure that the trade takes place smoothly, predictably, and
as freely as possible.
WTO Important Facts
Headquarters Geneva, Switzerland
Established on January, 01, 1995
Established by Uruguay Round Negotiations (1986-94)
Membership 164 members representing 98% of world trade
Budget 197 million Swiss Francs (2020)
Secretariat Staff 623
Asian Development Bank (ADB)

The Asian Development Bank (ADB) is a multilateral development finance

institution founded in 1966 by 31 member governments. It was established to
promote the social and economic progress of the Asian and Pacific region.
Over the past 31 years, the Bank’s membership has increased to 57, of which, 41 are
from within the region and 16 from outside the region.
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The Bank is responsible to cater to the needs of the smaller or under-developed

countries. It prioritizes the regional, sub-regional, and national projects and programs.
The ADB’s main objectives are:
o

o To extend loans and equity investments for the economic and social
development of its developing member countries (DMCs)
o To provide technical assistance for the preparation and execution of
development projects and programs, and for advisory services
o To promote and facilitate investment of public and private capital for
development purposes
o To respond to requests for assistance in coordinating development
policies and plans of the DMCs.
Goals of ADB
o

o Promoting economic growth

o Reducing poverty
o Developing human capital
o Improving status of the women
o Protecting the environment
Asia-Pacific Economic Cooperation (APEC)
o

o The Asia-Pacific Economic Cooperation (APEC) is a regional economic

forum set up in 1989 to leverage the growing interdependence of the
Asia-Pacific region.
o It consists of 21 members.
o The APEC aims to create greater prosperity for the people of the region
by promoting balanced, inclusive, sustainable, innovative, and secure
growth by accelerating regional economic integration.
o The word “economies” is used to describe APEC members because the
APEC cooperative process is predominantly concerned with the trade
and economic issues with members engaging with one another as
economic entities.
Sustainable & Inclusive Asia-Pacific
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o The APEC works to help all the members of the Asia-Pacific region to
participate in economic growth. For instance, the APEC projects provide
digital skills training for rural communities and help indigenous women export
their products overseas.
o Recognizing the impacts of climate change, APEC members also implement
initiatives to increase energy efficiency and promote sustainable management
of forest and marine resources.
o The APEC forum also adapts to allow members to deal with important new
challenges to the region’s economic well-being. This includes ensuring disaster
resilience, planning for pandemics, addressing terrorism, and so on.
Asia-Pacific Trade Agreement (APTA)

o The Asia-Pacific Trade Agreement (APTA), formerly known as the Bangkok

Agreement, is a preferential tariff arrangement that aims at promoting intra-
regional trade through the exchange of mutually agreed concessions by
member countries.
o APTA members are Bangladesh, China, India, Republic of Korea, Lao PDR,
and Sri Lanka. Mongolia has concluded bilateral negotiations on tariff
concessions and is to become the seventh member.
o The APTA recognizes the special needs of the LDCs (Least Developed
Countries) and calls for concrete preferential measures in their favour (Article
3). Participating States may grant special concessions to LDC members
(Article 7) and commit to giving special consideration for requests from the
participating LDCs for technical assistance.
o Rules of origin conditions are also more flexible for the LDCs. The value
addition requirement is 35% compared to 45% for non-LDCs; regional
cumulation is allowed with a value addition requirement of 50% compared to
60% for non-LDCs.
BRICS
o Brazil, Russia, India, China, and South Africa (BRICS) are leading emerging
economies and political powers at the regional and international level.
o The acronym was coined in 2001 to highlight the exceptional role of important
emerging economies and then the acronym included Brazil, Russia, India, and
China (BRIC) only.
o It was pointed out that high growth rates, economic potential and demographic
development were going to put BRIC further in a lead position and it was
argued that their increased relevance should also be reflected in their
incorporation to the G7.
 36

o The four countries themselves started to meet as a group in 2006 and it was
only in 2010 that South Africa was invited to join the group, which was then
referred to as BRICS.
Objectives of BRICS
o Build a credible repository of data and information that could be used by the
members
o Build a database of credible business partners across different geographies and
industry verticals
o Provide advisory services to the members on legal as well as other business
critical services.
o Build social and cultural exchange between interested nations by promoting
business around local art and culture.
Focus Area of BRICS
o Digital Economy
o Food Processing & Agri Business
o IT & E-Commerce
o Social Development
o Skill Development & Entrepreneurship
o Corporate Social Responsibility (CSR)
o Law & Taxation
o Trade & Commerce
o Healthcare
o Social Development

African Development Bank

The African Development Bank Group (AfDB, also known as BAD in French) is
a multilateral development finance institution, headquartered in Abidjan, Ivory
Coast since September 2014. The AfDB is a financial provider to African
governments and private companies investing in the regional member countries
(RMC). The AfDB was founded in 1964 by the Organisation of African Unity, which
is the predecessor of the African Union. The AfDB comprises three entities: The
African Development Bank, the African Development Fund and the Nigeria Trust
Fund.
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Mission
The AfDB's mission is to fight poverty and improve living conditions on the
continent through promoting the investment of public and private capital in projects
and programs that are likely to contribute to the economic and social development of
the region.
History
Following the end of the colonial period in Africa, a growing desire for more unity
within the continent led to the establishment of two draft charters: one for the
establishment of the Organization of African Unity (established in 1963, later
replaced by the African Union) and one for a regional development bank.
A draft accord was submitted to top African officials and then to the Conference of
Finance Ministers on the Establishment of an African Development Bank. This
conference was convened by the United Nations Economic Commission for
Africa (UNECA) in Khartoum, Sudan, from July 31 to August 4. It was here that the
agreement establishing the African Development Bank (AfDB) was cosigned by 23
African governments on August 4, 1963. The agreement came into force on
September 10, 1964.
The inaugural meeting of the Board of Governors of the bank was held from 4 to 7
November 1964 in Lagos, Nigeria. The bank's headquarters opened in Abidjan, Ivory
Coast, in March 1965 and the bank's operations commenced on 1 July 1966.
Originally, only African countries were able to join the bank, but in 1982, it began
allowing the entry of non-African countries as well. According to the AfDB, the
inclusion of non-regional members helped contribute to economic and social
development through low-interest loans, additional banking expertise and access to
markets outside of the region.
From February 2003 to September 2014, the bank operated from its Temporary
Relocation Agency in Tunis, Tunisia, owing to the prevailing political conflict
in Ivory Coast during the Ivorian civil war at the time. The bank was able to return to
its original headquarters in Abidjan in late 2013 once the political crisis was over.
By June 2015, over 1,500 staff had returned to the bank's Abidjan headquarters out of
the more than 1,900 total staff the bank.
Since its founding, AfDB has financed 2,885 operations, for a total of $47.5 billion.
In 2003, it received an AAA rating from the major financial rating agencies and had a
capital of $32.043 billion. In November 2019, the bank's capital was reported as $208
billion.
In the African Development Bank's (AfDB) 2022 Annual Report, a decrease in
Africa's GDP growth to 3.8%, down from 4.8% the previous year, was recorded. The
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16th replenishment of the African Development Fund (ADF-16), which provides soft
loans and grants, served as a significant financial enhancement, gathering USD 8.9
billion. Within this sum, USD 429 million was designated specifically for climate
change-related initiatives. The Bank's project approval amounts reached UA 6.16
billion, which is close to the pre-COVID-19 pandemic benchmark of UA 7.3 billion
from 2019. The High 5 strategic priority areas saw robust increases in funding,
with renewable energy projects receiving notable emphasis as they accounted for
100% of the approvals for energy generation projects. Investment in other key areas
also increased, with food security receiving UA 1.34 billion, industrialization UA
1.59 billion, and infrastructure UA 1.13 billion. The Bank's active portfolio grew to
UA 44.33 billion, with 58% of projects rated satisfactorily. Disbursements for the
year totaled UA 3.5 billion, and the Bank maintained its AAA credit rating.
Group entities
The African Development Bank Group has two other entities: the African
Development Fund (ADF) and the Nigeria Trust Fund (NTF).
African Development Fund
Established in 1972, the African Development Fund started operations in 1974. It
provides development finance on concessional terms to low-income RMCs which are
unable to borrow on the non-concessional terms of the AfDB. In harmony with its
lending strategy, poverty reduction is the main aim of ADF activities. Twenty-four
non-African countries along with the AfDB constitute its current membership. The
largest ADF shareholder is the United Kingdom, with approximately 14% of the total
working shares followed by United States with approximately 6.5% of the total
voting shares, followed by Japan with approximately 5.4 percent. The Federal
Reserve Bank of New York was designated as the depositor bank for the fund
according to telegraphs sent from the U.S. Embassy in Abidjan in 1976.
The ADF's general operations are decided by a Board of Directors, six of which are
appointed by the non-African member states and six designated by the AfDB from
among the bank's regional Executive Directors.
The ADF's sources are mainly contributions and periodic replacements by non-
African member states. The fund is usually replenished every three years, unless
member states decide otherwise. The total donations, at the end of 1996, amounted to
$12.58 billion. The ADF lends at no interest rate, with an annual service charge of
0.75%, a commitment fee of 0.5%, and a 50-year repayment period including a 10-
year grace period. The tenth United Kingdom replenishment of the ADF was in 2006.
Nigeria Trust Fund
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The Nigeria Trust Fund (NTF) was established in 1976 by the Nigerian
government with an initial capital of $80 million. The NTF is aimed at assisting in
the development efforts of the poorest AfDB members.
The NTF uses its resources to provide financing for projects of national or regional
importance which further the economic and social development of the low-income
RMCs whose economic and social conditions require financing on non-conventional
terms. In 1996, the NTF had a total resource base of $432 million. It lends at a 4%
interest rate with a 25-year repayment period, including a five-year grace period. The
loans can be used for concessional loan operations with long and short term maturity.
Management and control
The AfDB is controlled by a Board of Executive Directors, made up of
representatives of its member countries. The voting power on the Board is split
according to the size of each member's share, currently 60%-40% between African
(or "regional") countries and “non-regional” member countries (“donors”). The
largest African Development Bank shareholder is Nigeria with nearly 9% of the vote.
All member countries of the AfDB are represented on the AfDB Board of Executive
Directors.
Dr. Akinwumi Ayodeji Adesina is the 8th elected President of the African
Development Bank Group, having taken the oath of office on September 1, 2015. He
chairs the Boards of both the African Development Bank and the African
Development Fund. Dr. Adesina served as Nigeria's Minister of Agriculture and Rural
Development from 2011 to 2015.
Member governments are officially represented at the AfDB by their Minister of
Finance, Planning or Cooperation who sits on the AfDB Board of Governors. The
AfDB Governors meet once a year (at the Annual Meetings of the AfDB each May)
to take major decisions about the institution's leadership, strategic directions and
governing bodies. The Governors typically appoint a representative from their
country to serve in the offices of the AfDB's Board of Executive Directors.
Day-to-day decisions about which loans and grants should be approved and what
policies should guide the AfDB's work are taken by the Board of Executive Directors.
Each member country is represented on the Board, but their voting power and
influence differs depending on the amount of money they contribute to the AfDB.
In June 2020, the board of the AfDB agreed to a review of Adesina's management of
the bank. Adesina is up for reelection in August 2020. Adesina was re-elected
unanimously for a second five-year term on August 27, 2020.
Unit of Account
 40

ADB Bank uses a Unit of Account which is registered as ISO 4217, whose standard
currency code is XUA. It is not exchanged directly by individuals, it is used for
accounting between state members.
Functions
The primary function of AfDB is making loans and equity investments for the socio-
economic advancement of the RMC. Second, the bank provides technical assistance
for development projects and programs. Third, it promotes investment of public and
private capital for development. Fourth, the bank assists in organizing the
development policies of RMCs.
The AfDB is also required to give special attention to national and multinational
projects which are needed to promote regional integration.
Status
The AfDB promotes economic development and social progress of its RMCs in
Africa and the bank commits approximately $3 billion annually to African countries.
Its relatively small lending and tendency to follow in the footsteps of more prominent
public institutions like the World Bank, implies that the African Development Bank
has been receiving little interest from civil society organizations as well as academia.
AfDB emphasizes the role of women along with education reforms, and lent its
support to key initiatives such as debt alleviation for Heavily Indebted Poor
Countries and the New Partnership for Africa's Development (NEPAD). The bank is
currently based in Abidjan, Ivory Coast again. It employs approximately 1,865
employees as of 2016, and has 80 members: 54 countries in Africa and 26 American,
European, and Asian countries.