BSACET UNIT-1 IHRM

International Human Resource Management-Overview, Developments leading to International HRM

Perspectives, International Human Resource Management: Role and Distinguishing Activities, Organizational
Structure and HRM, International Human Resource Planning. Case Studies
.

INTERNATIONAL HUMAN RESOURCE MANAGEMENT (IHRM)

MEANING AND DEFINITION OF INTERNATIONAL HRM
The global or international viewpoint of human resource management can be termed as international HRM or
cross-cultural human resource management. Managing human resources at global level is the main concern of
international human resource management (IHRM). The manner in which human resources are managed by
international organisations across various national surroundings is analyzed by IHRM. It assists the
multinational firms in achieving success at an international level. IHRM refers to the procedure of sourcing,
assigning, and using the human resources in an effective manner in MNCs.
According to Morgan, "International human resource management is the interplay among these three
dimensions - human resource activities, types of employees, and countries of operation".
According to Hugh Scullion, "IHRM has been defined as the HRM issues and problems arising from the
internationalization of business; and the HRM strategies, policies and practices which firms pursue in response
to the internationalization process".
FEATURES OF INTERNATIONAL HRM
Following are the features of IHRM:
1) It deals with hiring right individuals at the right positions, regardless of their geographical locations.
2) It necessitates developing long-run HR plan in order to ensure an effective congruence of HR strategies
with the goals of the organisation.
3) It entails growing diversified variety of abilities for workers, particularly for those who want to work
outside national borders.
4) It requires determining compensation for home, host, and third country nationals based on the factors
which are specific to an economy.
5) It necessitates the formation of centralized reporting relationships worldwide to facilitate quick exchange
of information.
6) It involves the initiation of informal and formal techniques for the effective integration of the various parts
of international business.
7) It entails developing an efficient evaluation system for the evaluation of employee's performance across
various countries and locations.
8) It is important to have a good understanding of the cultural dimensions of host countries which impact the
HR functions.
9) It is vital to sustain effective communication between each and every part and individuals of the company
at an international level.
10) Different international locations have different perceptions about the value of HR activities.

REASONS FOR EMERGENCE OF INTERNATIONAL HRM

Various reasons for the growth of IHRM are described below:

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1) Rapid Growth of Global Competition and Intel-nationalization: The importance and the number of
MNCs have risen in the current years due to the prompt growth of global competition and Intel-
nationalization, thereby giving rise to increased movement of human resources.
2) Need of Effective Management: A factor which is considered as most important for failure or success in
international business is the quality and effective management of human resources. This is because of the
reason that human resources are generally indentified to provide competitive edge to the organisations in
3) Need of International Managers: Scarcity of international managers is the main hurdle which comes in
the way of execution of international strategies. It refers to an increased requirement of global managers
with unique proficiencies for dealing with culturally diverse individuals in the multinational corporations.

4) Conventional Hierarchical Structures of Organisations are Becoming Useless : MNCs are moving
towards network of horizontal channels of communication and personal relationships and conventional
hierarchical organizational structures are now becoming obsolete. An essential role is played by HR in
network organisation.
5) Development of Different Organizational Cultures: A more important role is played by HR strategy in
controlling and execution in the global organisation, which necessitates the development of different
organizational cultures. It has resulted in considerably improved role of IHRM.
6) Cross-Border Mergers, Strategic Alliances, and Acquisitions are Growing: The significance of IHRM
has further risen due to the growing number of cross-border mergers, strategic alliances, and acquisitions as
the international business is progressively moving from matured, developed, and formal markets to the
culturally distant, developing, and informal markets.
7) Knowledge-Acquisition, Learning, and Adaptation: Knowledge-acquisition, learning, and adaptation
have been recognized as essential sources of competitive edge for multinational corporations. This factor
has also increased the role of IHRM in order to fulfil the main strategic challenge of goals.
8) Knowledge Management: Another significant source of competitive edge for MNCs is knowledge
management, which necessitates the capability of an organisation to create, transmit, and assimilate
knowledge beyond borders. In relation to this, a crucial role is played by IHRM.
OBJECTIVES OF INTERNATIONAL HRM
IHRM has certain objectives which are listed below:
1) To minimize the threats to international human resource.
2) To avoid the culture-related risks.
3) To avoid the regional differences.
4) To sustain local responsiveness.
5) To deal with the diverse human resources.
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6) To make sure of a global outlook pertaining to local sensitivities.
7) To be able to transfer learning across the units that are internationally dispersed.
8) To disperse the awareness and cross-cultural sensitivities between employees and managers throughout the
world.
SCOPE OF INTERNATIONAL HRM
The scope of international HRM covers the following areas:
1) Human Resource Planning: The procedure of predicting the future demand and supply of a global
organisation regarding the right kind of people in right quantity is referred to as human resource planning.
This procedure is much aligned with the business plan of a multinational organisation.
2) Recruitment and Selection: The procedure of inviting individuals to apply for the jobs in an organisation
is known as the recruitment. The employers now are not confined to national or local level for the
recruitment as all the countries of the world have come closer because of modern communication and
transport systems. The recognition of the most appropriate individual from the group of candidates is
referred to as selection.
3) Training and Development: It is also among the most essential activities of the international human
resource management. Training and development for the new employees, especially who are likely to be
sent to foreign countries, is an extremely crucial task.
4) Remuneration: The remuneration or compensation system of an organisation is the general method,
through which administration and planning of employee reward is done. The significance of global
compensation strategy in the execution of corporate strategy is being recognized gradually.
5) Performance Management: With respect to the international environment, performance management is
the process by which multinational enterprises are able to assess and constantly enhance the performance
of the organisation, individual, and subsidiary against the pre-defined clear goals directly connected to
global strategy.
6) Employee Relations: From strategic view, the point to which the choices to unite and assimilate its global
operations can be restricted by the organized labor, is the basic issue in global employee relations.
Organized labor can obstruct the ability of the organisation to unite and assimilate its global operations in
order to benefit from location economies and experience curve thereby restricting the efforts to attain a
global strategy.
FACTORS INFLUENCING INTERNATIONAL HRM
Following are the various factors influencing IHRM:
1) Cultural Factors: The national culture, in which the organisation is situated, is an extremely essential
factor which impacts IHRM. Asset of values, rules, and assumptions which is established by the society is
referred to as culture. Culture of a nation can be expressed as the set of beliefs, values, languages, and
symbols in a particular culture. It is the culture that differentiates between various organisations. For
example, the western culture is totally different from the culture of east. The incentives in Asia (Japan)
emphasize on teamwork, while on the other hand, the western culture focuses on the performance of
individual worker for providing incentives.
2) Economic Factors: Abundant economic differences are also present amongst countries in the same way as
the cultural differences. The differences which occur in HR in different countries are the result of this
difference in economic situation or system. For example, a country where free enterprise system prevails,
HR policies and practices which help in motivating output, efficient employees, etc., are promoted through
the efficiency requirements. While, contrary to this, HR practices which have the tendency of encouraging
social welfare (like checking unemployment) are initiated in those countries where socialist systems
prevail. These practices are undertaken even at the cost of efficiency.
3) Legal-Political Factors: The legal factors differ across various countries. IHRM is also intensely
influenced by the rules and regulations which are levied by the legal system of a country. The need of
specific HRM practices like hiring, training, firing, layoffs, and compensation is majorly influenced by

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legal-political system. Mostly, the legal system is an extension of the culture where it prevails. Therefore,
the laws of the specific country frequently present social norms regarding what comprises legal behaviors.

IHRM MODEL
A model of IHRM has been presented by P. Morgan. As depicted in figure below, IHRM is presented by him
on three dimensions:
1) HR Activities: They are the wide HR. activities of procuring, allocating, and utilizing.
2) Countries: The country classifications included in IHRM activities are :
 Host Country: The country where the subsidiary might be situated.
 Home Country: The country where the company has its head office.
 Other Countries: The countries which may be acting as a means of finance, labor, and several other
inputs.

3) Types of Employees: The classifications of employees of a global organisation are as follows:

 Host-Country Nationals (HCNs): Host-country nationals are the residents of host nation where the
principal operations of the organisation are situated. For example, an Indian company hiring an
American supervisor to oversee the operations in America.
 Parent-Country Nationals (PCNs): They are also known as home-country nationals. These are the
residents of the nation where the head office of the firm is situated and these residents are assigned to
one of the overseas operations of the company. For example, a German manager will be considered as
home-country national in case he is chosen to go to Bolivia by a German multinational.
 Third-Country Nationals (TCNs): These are the employees of the organisation who are neither the
residents of the nation where the head office is situated nor of the foreign operations where these
individuals are placed. For example, a French mining engineer would be considered as third-country
national, if he is employed by a German multinational for a Bolivian project.
PRINCIPLES/APPROACHES TO INTERNATIONAL HRM
Following are the approaches applicable to IHRM:
1. Ethnocentric approach: Countries with branches in foreign countries have to decide how to select
management level employees. Ethnocentric staffing means to hire management that is of same nationality
of parent company. 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.
2. Polycentric Approach: Under this approach, every location cultivates its own policies and practices that
are constant with labor force features and domestic culture. The main strategic initiative enabled by this
approach is the adaptability to tastes and preferences of the consumer. In this approach, there is a
localization of management practices for matching the prevailing needs of the market. Though it can prove
to be an expensive approach, but is very responsive to labor situations and domestic market and can assist
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in retaining employees during an acquisition, especially if anti-foreign ownership attitude is present
amongst the domestic individuals.
3. Regiocentric Approach: This approach includes the development of standardized policies and practices
by geographical region so that there remains functional efficiency and uniformity. Simultaneously, there
exist some differences between regions to assist the domestic markets. Independently managed regional
subsidiaries in a geographical region are mainly involved in regiocentric approach.
4. Geocentric Approach: The development of one standardized set of international policies and practices,
which are applicable to each and every location worldwide, is included in the geocentric approach. This
approach varies from the ethnocentric approach in the sense that though one set of management systems
which is created as per the culture of home country is exported to every location in the ethnocentric
approach, the geocentric approach takes into consideration the international labor force in every area of its
Functioning along with the several domestic cultures where it functions and tries to develop policies and
practice with surpass cultural differences.
Aspect of enterprise Ethnocentric Polycentric Regiocentric Geocentric
Standard
International as well as
establishing, By home country By local subsidiary Coordination over nations
local control and
Assessment and headquarters. management. in the region.
standards.
Control
Little between Little amongst subsidiary Fully connected
Communication and From Headquarter subsidiaries, little and HQ, medium to high network of subsidiaries
Coordination to local subsidiary. among subsidiary between subsidiaries in and subsidiaries with
and HQ. region. headquarters.
Managers may hail from Best individuals where
Home country Host country
Staffing countries inside the they can be used most
managers. managers.
region. appropriately.
IMPORTANCE OF INTERNATIONAL HRM
The importance of HRM is as follows:
1) Now, both the local and the foreign enterprises can enter the market which has increased the competition.
Thus, the markets now are not secured from overseas competition.
2) Business is being pursued even outside domestic borders to become global business, which is ever-
changing. This is the result of globalization.
3) A high percentage of labor force is placed in the other nations far away from their home countries, homes,
family, relatives, and friends.
4) Businesses are compelled to search and sustain the competitive edge because of the unexpected foreign
competition level in both the markets, i.e., foreign and local markets.
5) The activity which is given top priority by the management is the search and development of able and
competent human resources with respect to higher level of competition in the global and local market.
6) It is essential for the execution of international competitive strategies that the human resources are of good
quality with requisite skills and knowledge.
7) The organisations which are deciding to enter into the global markets are under added stress to handle their
limited resources in an efficient manner. It is more important for these kinds of organisations to deal with
the human resources in comparison to any other resource.

ROLE OF CULTURE IN INTERNATIONAL HRM

The following aspects can be used for explaining the role of culture in IHRM:
1) Recruitment and Selection: It is noticed that various policies related to recruitment, selection, and
retention are greatly influenced and dominated by a certain culture. First of all, different cultures have
different fundamental criteria for selection. Depending upon the existing literature, Aycan explained that

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there are some very hard standards such as technical skills and job related knowledge which acts as the
basis of recruitment and selection in cultures that are universal or more performance oriented.
2) Compensation and Benefits: There are some proofs which indicate the depending upon the set-up of
different cultures, various policies related to compensation and benefits must be decided. One of the
important aspects is related to the basis upon which different employees are compensated. Particularly,
there are some significant differences between job oriented and skill or person oriented pay systems in
many literatures. In this context, a compensation system which is oriented towards a formal, systematic,
and objective evaluation of comparative values of a job within the organisation is developed by
performance-oriented or universalistic cultures.
3) Performance Appraisal: There are mainly three steps in the process of assessing the performance of an
employee:
 Preparing the appraisal process which mainly deals with the performance criteria and targets which are
to be appraised.
 Deciding the method or process of appraisal, and
 Determining the content of the performance evaluation.
4) Training and Development: Training and development can be seen as the last element of HRM policies
and practices. There are some cultural differences when it comes to the significance of training and
development and the content as well as methods used for training

DOMESTIC HRM VERSUS IHRM

CHALLENGES OF INTERNATIONAL HRM

Following are the challenges to the effective execution of practices in international HR networks:
1) Managing Cultural Diversity: As culture is a wide-ranging term, so it can be conceived in a number of
ways. Different types of meaning are derived by different people regarding the concept of culture because
it generally incorporates art, norms, customs, values, and many more. In short, it can be said that the
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manner in which the work is being done by the individuals is defined by culture. Culture varies largely in
the different countries. The initiation of human resource management practices which are specific to a
country is required by these types of cultural differences.
2) Managing Workforce Complexity: The problems may originate in fixing the compensation and also in
HR practices in case individuals from both the home country and host country are hired by the
organisations. Maintaining the’ balance between the requirements of parent-company employees and
welfare of the host country communities becomes a difficult task for the HR managers.
3) Handling Change Resistance: Different locations' own manner of doing tasks and resisting change is the
other challenge confronted by the HR practitioners. Gaining acceptance of the local personnel will become
a tough task, if an HR policy is perceived to be forcefully imposed on them by the organizational
management. It is true irrespective of whether they are local employee on whom the HR policy is being
forced by U.K. multinational or a Spanish company which is forcing policies on its global business.
4) Management of Channels of Communication: A sense of difficulty may be faced by the HR managers in
carrying out field-based face-to-face communication as an important part of employee management at the
international level. In fact, even the advanced communication system cannot take the place of face-to-face
communication which is needed in the global operations.
5) Management of Varying Economic Systems: Diverse types of HR practices are required in different
economic systems such as regulated economy and free enterprise. There are a number of factors which are
influenced by the economic systems, some of which are the number and the nature of holidays, labor costs,
employee and employer rights, hours of working, etc
6) Management of Industrial and Legal Relations Issues : There are distinct industrial and legal relations
practices in each and every country. For example, employment, dismissal, and lay-off of employee in few
countries are according to the choice as allowed by its legal systems. However, in few other countries,
organizational-exit of the employees may turn out to be a costly, time-taking, and burdensome process.
7) Managing Human Resource Perception across Countries: The variation in the perception of value of
HR function over different locations is a vital international challenge. HR may be considered as a core
business partner, who works with top managers on crucial strategic evaluations in one nation, while it may
be observed as a mere employee department of transactional nature in other country inside the same firm
dealing with administrative work.