IHRM Basics

International Human Resource Management

M S Ramesh

Session 1

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Agenda• Introduction to IHRM–Definition–Globalization– Some Myths– Reasons for going global

– Reasons for emergence of IHRM–Differences between IHRM and domestic

HRM– Approaches to IHRM

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Introduction to IHRM

• Definition of HRM (contd.)• “Human” represents the dimension of HRM which

relates to the soft aspects such as commitment of employees through participation and the fact that the most important assets being the employees.

• “Resource” represents the hard aspects such as the strategy link of HRM and the importance of efficient utilization of employees.

• “Management” represents the role of HRM as part of management that implies that it’s not only an administrative function that carries out the formulated policies but also a managerial function that contributes to strategy formulation

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• Definition of IHRM• International HRM (IHRM) is the process of:

• procuring, • allocating, and• effectively utilizing human resources • in a multinational corporation, while• balancing the integration and differentiation of HR

activities in foreign locations

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• Definition of IHRM (contd.)• The process of procuring, allocating, and

effectively utilising human resources in a multinational corporation• If the MNC is simply exporting its products, with only

a few small offices in foreign locations, then the task of the international HR manager is relatively simple

• In global firms HR managers need to achieve two somewhat conflicting strategic objectives• They must integrate HR policies and practices across a number

of subsidiaries in different countries so that overall corporate objectives can be achieved.

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

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Some Myths about Globalization

• Myth #1: Global = International

• Myth #2: Global strategy means doing same thing everywhere

• Myth #3: Globalizing = stateless corporation, no national/community ties

• Myth #4: Globalization requires abandoning country images and values

• Myth #5: Globalizing means tackling on acquisitions or alliances in other countries, without much integration/change

• Myth #6: A strategy must involves sales/operations in another country

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International, Multinational, Global & Transnational organizations

• International company – transports its business outside home country; each of its operations is a replication of the company's domestic experience; structured geographically; and involves subsidiary general managers • Companies offering multiple products often

find it challenging to remain organized e.g. need to have a common information systems for accounting, financial and management controls, and marketing. Most evolve to become multinational companies

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• Multinational company – grows and defines its business on a worldwide basis, but continues to allocate its resources among national or regional areas to maximize the total

• Global organizations – treat the entire world as though it were one large country; may be the entire company or one or more of its product lines; may operate with a mixture of two or more organizational structure simultaneously

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• Transnational organization - Use specialized facilities to permit local responsiveness; more complex coordination mechanism to provide global integration

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Reasons for Globalization

• Scale Economies• Scope Economies• Shorter Product Life Cycles• Direct Foreign Investment• Technology

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Factors that Influence the Global Work Environment

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Forces for Change

• Global competition• Growth in mergers, acquisitions and

alliances• Organization restructuring• Advances in technology and

telecommunication

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Impacts on Multinational Management

• Need for flexibility:• Local responsiveness:• Knowledge sharing:• Transfer of competence

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Reasons for emergence of IHRM

Uncertainty, Complexity, Uncertainty, Complexity, HypercompetitionHypercompetition

Need to Refocus on Persons, Roles and Need to Refocus on Persons, Roles and Integration for Global Performance Integration for Global Performance HR

CapabilitiesCapabilitiesPeople ProcessesPeople ProcessesPersons in RolesPersons in Roles

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Reasons for emergence of IHRM

• Increasing globalization, firms and employees in them moving all over the world.

• Major problems in international operations because of human resource management blunders• Hence Need to understand human resource

management in a global perspective

• The increasing role of HR in International Operations

• Challenges of managing a Multicultural Workforce

• Developing Managerial Talent in a Global Business Environment

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Basic Terms in IHRM

• National or Country Categories– Host Country where subsidiary is located– Home Country where the firm headquartered– ‘Other’ or 'Third' Country

• Employees of an International Firm– Host Country Nationals (HCN)– Parent Country Nationals (PCN)– Third Country Nationals (TCN)– Expatriates

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Basic Terms in IHRM

• Host Country National (HCN): Belongs to the Country where the subsidiary is located

• Parent Country National (PCN): Belongs to the Country where the firm has its headquarters

• Third Country Nationals (TCN): Belongs to any other country and is employed by the firm

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Basic Terms in IHRM

• What is an Expatriate?• An employee who is working and temporarily

residing in a foreign country• Some firms prefer to use the term “international

assignees”

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

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Differences between Domestic HRM and IHRM

03/03/11

Differences between Domestic HRM and IHRM

• More HR activities: taxation, culture orientation, administrative services

• The need for a broader perspective: cater to multiple needs

• More involvement in employees’ personal lives: adjustment, spouses, children

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

• Risk exposure: expatriate failure, terrorism

• Broader external influences: government regulations, ways of conduct

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Differences between Domestic HRM and IHRM - Variables

• Complexity involved in operating in different countries, varied nationalities of employees

• The different Cultural Environment• The industry or industries with which the

MNC is involved• Attitudes of Senior Management• Extent of reliance of MNC on home country

domestic market

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Approaches to Managing and Staffing Subsidiaries

• Ethnocentric• Home country approach

• Polycentric• Local approach

• Regiocentric• Regional approach

• Geocentric/Global• Global approach

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The Influence of Managing and Staffing Approaches

• Ethnocentric approach• PCN’s usually staff important positions at

headquarters and subsidiaries

• Polycentric approach• HCN’s generally work in foreign subsidiaries

• PCN’s manage headquarters positions

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• Regiocentric approach• PCN’s and managers from the region—either

HCN’s or TCN’s—staff regional headquarters positions

• HCN's primarily staff local subsidiaries

• Geocentric approach• Chooses the most suitable person for a

position

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• Ethnocentric: • Highly centralized

• HQ controls

• PCNs dominate.

• Polycentric/Regiocentric: • Decentralized

• Each subsidiary has some degree of decision making autonomy

• HCNs primarily manage subsidiaries.

• Geocentric: • Ignores nationality in favor of ability and competence

needs in a worldwide integrated business strategy.

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Choosing an Approach to IHRM

• Corporate international strategy• Political and legal concerns• Level of development in foreign locations• Technology and the nature of the product• Organizational life cycle• Age and history of the subsidiary • Organizational and national cultural

differences

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Documents

IHRM Basics