chapter 28 international human resource management

Chapter 28

International Human Resource Management

Lecture Overview

•International HRM

•Difference between IHRM and Domestic HRM

•Basic steps in IHRM

•Key Issues in International Labour Relations


• Globalization has significantly influence HRM practices and policies

• All HRM functions need international orientation

• MNC operating internationally need to be more focused to attract, motivate and transfer workforce globally

• The process of procuring, allocating, motivating, training & development, and compensating and utilizing human resources in international business is called international human resource management

• IHRM covers six main functions of domestic HRM such as HR planning, recruiting, training and development, performance management, compensation and labour relations

• The three countries categories of IHRM are country where headquarter is based, country where subsidiary is located, and country from where workforce and finances come


• The three types of workers in international business are host country, parent country and third country nationals

• IHRM differs from domestic HRM on following points

1. More HR activities

2. Broader perspective

3. More involvement in employees’ personal lives

4. Greater workforce diversity

5. Change in Emphasis

6. More risk

7. More external influences


1) More HR activities

• IHRM has boarder scope in deal with employment related issues.

• For example: International taxation, host country regulations, home country regulations, international orientation of relocating and training of employees, and administrative and compensation issues of expatriates, and language translation services


• Each HR functions has different scope and issues in IHRM

HR Planning

• Difficulty in implementation of HR policy and procedure in host country

• Difficulty in aligning business strategy with HR strategy

• Providing career development opportunities to international managers

Hiring

• Matching person and organizational fit (cultural match)

• Selection of expatriates

• Managing expatriates failures

• Managing repatriation process

International Human Resource ManagementTraining and Development

• Language training

• Cultural training

• Training of expatriates and managers

Compensation

• Deciding compensation of expatriates

• Deciding compensation of parent, host, and third country nationals

Performance Management

• Implementation of performance evaluation system in host country

• Physical distance, time difference, and reporting cost

• Raters to evaluate subsidiary performance


Industrial Relations

Who should deal industrial relations issues in subsidiary?

What is attitude and policy of parent company toward unions in subsidiary?

What should be tactics to deal with unions in subsidiary?

2) Need for Broader Perspective

In dealing with compensation issues, HR manager in headquarter need to consider different pay systems for parent, host, and third country nationals, paying in different currencies, and change in relative value of currency

In deciding fringe benefits, HR managers face difficulty, in most countries providing health insurance is compulsory, whereas definition of dependent varies from country to country, in some countries dependent means multiple spouses, children, parents, grandparents

International Human Resource Management3) More involvement in employees’ personal lives

In IHRM there is more involvement of HR department in dealing with their personal issues for better selection, training, relocation and effective management of global workforce

HRM department need to ascertain that managers selected for foreign assignment understand housing, health care, and remuneration package

HRM need to have more information about manager family, schooling of their children, emotional and physical health of their spouse and children etc.

‘International Human Resource Services’ section provide services to managers like handling investment, banking, home rental, house arrangements, home visits, and repatriation issues

Unlike domestic HRM in International HRM, HR manager needs to understand more about their personal lives and provide support in relocation for foreign assignment even assistance to children left behind


4) Greater Work force DiversityIHRM requires more emphasis on management of global and

diversified work force

Different work ethics, motivation level, cultural compatibility, managing team work are main issues that IHRM to handle

5) Change in EmphasisEmphasis has changed from idea of repatriation and

dependence on third country nationals towards development of local managers

As more trained local managers are available, the issue of training and development of local managers come to highlight

Designing programs and policies to provide development opportunities to local managers by placing them in headquarter


6) Risk Exposure

MNCs operating in different countries need to assess the law and order situation and advise or provide support to their expatriates or third countries employees

HR department may also need to have emergency evacuation program for their employees working in highly risk areas

Poor selection decision may result into huge loss as in case of expatriate may not perform well and recalled

If MNC’s policies and practices are hostile to unions, political party or in violation of host country regulations, company can be asked to win up operations or government may seize physical and financial assets


7) External Influence

MNCs operating in host country face more external influence as opposed to local company

Federal and local government, political figures, political and social groups exert great pressure on foreign company

Subsidiary manager need to know local way of doing business, dealing with different ministries, political parties, and labour unions


Growing interest in IHRM

There are number of reasons for growing interest in IHRM

Thanks to globalization, more and more entry of multinational corporations means greater mobilization of human resources

In international business human resources performance is more critical for success

The cost of underperformance in international assignment is very high both in financial and image terms

The international expansion mainly depend on availability and utilization of competent human resources

Finally, implementation of strategies is more crucial than developing, and implementation is dependent upon culture that is developed by HR policies and practices

Managing International HR Activities

HR Planning

Recruitment and Selection

Training and Development


Remuneration

Repatriation

Employee Relations

Multicultural Management

Org

an

izationa

l Effective

ness

Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333


HR Planning

• HR planning in international business is more complex and crucial

• HRP procedures are difficult to implement in different countries. Cultural differences in view of planning

• Identification of top management

• Identification of critical competencies for future managers

• Providing developmental opportunities

• Tracking and supporting in pursuing international career path

• Aligning business strategy with HRP and vice-versa (European and Asian strategy)



• Main issue in international hiring is not to select competent employee but candidate who could mix with culture of organization

Ethnocentric Approach• All key management positions are held by parent country

nationals

• This is good strategy at early stage of new start up/operations in host country

Polycentric Approach• Subsidiary is headed by host country nationals and parent

country nationals are at the top positions in headquarter

• Some countries have made regulation or exert pressure to hire host country nationals for top position in subsidiary


Geocentric Approach

In this staffing approach best people are selected to fill vacant positions irrespective of their nationality

Staffing approach Advantages Disadvantages

Parent Country Nationals

• Familiarity with headquarters goals and objectives

• More organizational control and coordination

• Competent managers are giving expatriate opportunity

• Specific skills and experience

• Difficulty in adjustment: foreign language, different culture and political and socio economic system

• Cost of training, remuneration and family benefits

• Host countries nationals feel demotivated when they see no further progress

• PCN can impose unnecessarily HQ culture and style

• Family adjustment issues


Staffing approach Advantages Disadvantages

Host Country Nationals

• Familiarity with country’s culture, political system and business practices

• Low cost of hiring and remuneration

• Promotional opportunities for locals hence motivated and committed

• No language barrier• Continuity of management

• Communication problems with home country management

• Little change of host country nationals to get international assignments and experience

• Difficulty in inculcating HQ management philosophy, culture, and best practices

Third Country Nationals

• Low salary package as compared to PCN

• They are truly international managers

• May be more aware of host country culture, political and economic system, language hence easily and quickly adjust

• Host country may not like to hire TCN

• TCNs may not return to their country

• Host country may be sensitive or have hostile attitude toward TCN

• Resistance from subsidiary employees

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 667 333

Chapter 28


Lecture Overview



•Basic steps/activities in IHRM



HR Planning




Remuneration

Repatriation

Employee Relations

Multicultural Management

Org

an

izationa

l Effective

ness

Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333


Factors Influencing PCN and HCN Choice

Dimensions Factors

Parent Country Characteristics

Cultural distance between HQ and subsidiary, size of operation, research intensity

Industry Characteristics Financial institution, need for control, need to customize

Subsidiary Characteristics Age, acquired or strategic role of subsidiary, performance, ownership

Host Country Variables Educational levels, political risk, cost of hiring



ExpatriatesExpatriates are those employees who work abroad (away from

their home country) for a specific time period with a planned return to third country or home country

Need for expatriates

Selection process

Departure

Pre assignment training

Post arrival training

Crises and failure

Crises and adjustment

Reassignment abroad

Repatriation and adjustment

or

Expatriates Assignment life cycle




Reasons of Expatriate Failure

US Firms Japanese Firms

Spouse adjustment problem Inability to cope with international responsibilities

Inability of managers to adjust Difficulties with environment

Other family reasons Personal and emotional problems

Personal and emotional maturity of managers

Lack of technical competence

Inability to cope with international responsibilities

Spouse adjustment problem


Expatriate Adjustment Process


Mood

High

Low

Months in new culture

Cultural Shock Cycle



Expatriate Selection Decision



The common objectives of training and development in MNCs are

• Bridging cultural gap between subsidiary and HQ

• Orientation challenges are different in HQ and subsidiary

• Building united corporate culture

• Training and development activity IHRM most of the time focus on training of candidate likely to be posted abroad

• Expatriates are giving training to reduce likelihood of failure in foreign assignment. The main components of training of expatriate are cross cultural, language and practical training, and management development programs


1) Cross Cultural Training:

• Expatriate receives pre-departure training on host country culture to make it easy for him/her to adjust to new culture

• Expatriate often receives training on repatriation to avoid cross cultural shock

Merits Demerits

More chances of success in foreign assignment

May not remove cultural biases

Provides comprehensive global perspective

Recipient may not take it serious

Sense of confidence May not make real difference in business

Reduces cultural shock Can not prepare manager to face all real life problem




In IHRM performance management tend to focus on evaluation of performance and continuous improvement of individual, subsidiary and corporate performance against pre set targets and objectives


Steps in Performance Management of Expatriate


Expatriate’s Compensation

The objectives of expatriate compensation

1. Attract employees for international assignment

2. Facilitate the movement

3. Be cost effective

4. Provide consistent relationship between HQ employees and foreign subsidiary

Problems with expatriate compensation

1. Gap between pay of parent, host and third country nationals

2. The pay variation considering the expatriate's family

3. Issues relating to entry of expatriate back to parent country


Expatriate’s Compensation

MNC Internal environment•Goal orientation•Capacity to pay•Internal workforce composition•Subsidiary role

Staffing Option

Compensation strategy

MNC external environment•Parent nationality•Local culture•Host and home country government role•Industry type•Competitor's strategy

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 6773

Managing International HR ActivitiesExpatriate’s Compensation

Base Salary• Different meaning from domestic employment

• Primary component of package of allowances (foreign assignment premium, house allowance, and cost of living allowance)

• Payment in home country and host country currency

Benefits Issues• Whether expatriate subscribe to home country benefits (if

there is tax exemption)

• Whether home or host country is responsible for social security benefits

• Whether the benefits should be according to host or home country requirements

• Whether home country benefits be available to local citizens

Managing International HR ActivitiesExpatriate’s CompensationAllowances• Cost of living allowance, provide same standard of living as

expatriate was enjoying in home country

• Covers expenses like relocation, housing, hardship, and education

• Spouse assistance (protect or compensate loss in case of spouse lost income due to relocation)

• Offer support to find spouse job or placement in subsidiary

Incentives• Incentive is once time lump-sum payment apart from regular

salary • Tax equalization: MNC based on home country tax

obligation withhold or deduct amount from expatriate salary and pay all taxes in host country

• Tax protection: Employee pays up to the taxes he would pay on remuneration in his home country and entitled to retain extra in case tax deduction is less in foreign assignment


Tax Consideration

• Tax equalization: MNC based on home country tax obligation withhold or deduct amount from expatriate salary and pay all taxes in host country

• Tax protection: Employee pays taxes he would pay on remuneration in his home country and entitled to retain extra in case tax deduction is less in foreign assignment


Tailoring the package

Balance sheet approach• Equate purchasing power of expatriate in host country with

home country

Going rate approach• Expatriate compensation is linked with host country on

going rate

Lump-sum method• Giving lump-sum amount and expatriate has option to

spend in a way he likes

Regional approach• In which MNC decide compensation system for particular

region (Europe, South Asia, Middle east)


RepatriationBringing expatriate back to home country after completion of

assignment or due to other reasons (failure to perform, adjustment problems, family problems)

Re-entry shock or reverse culture shock

Benefits of returnees

• Exposure to global culture and local culture

• Part of global network

• Understand operations of HQs and subsidiary (overseas operations)

• Transfer technology, business knowledge back to home country

• Provide coordination and communication support


Benefits from returnees

• Exposure to global culture and local culture

• Part of global network

• Understand operations of HQs and subsidiary (overseas operations)

• Transfer technology, business knowledge back to home country

• Provide coordination and communication support

• Personal and professional growth (global and broader vision)


Repatriation Process

Preparation

Physical relocation

Transition

Re-adjustment

Repatriation Process

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 681


Repatriation

Challenges of Re-entry

Individual Perspective• Personal Perspective: Face reverse cultural shock

schooling, social network, loss of income, lower social status

• Professional disappointment: No use of his expertise and skills gained during foreign assignment, less authority, autonomy, and importance

• Often limited promotion opportunities and career choices means removed from mainstream corporate advancement

Organizational Perspective• Retaining the expatriate after repatriation


Industrial Relations

Who should deal industrial relations issues in subsidiary?

What is attitude and policy of parent company toward unions in subsidiary?

What should be tactics to deal with unions in subsidiary?


Multiculturalism

Culture is customs, beliefs, values and norms that guide behavior and pass from one generation to other

Multiculturalism when people from different cultures interact regularly

IHR managers should have cross cultural competence

Should have strong personal identity, knowledge of different cultures, communicate effectively in language of given culture group

Hofstede Cultural dimensions: Power distance, uncertainty

avoidance, Individualism, and masculinity

Summary



•Basic steps/activities in IHRM


chapter 28 international human resource management

Documents

international business

international managers

international taxation

parent country

country nationals ihrm

host country regulations

host country difficulty

international orientation