INTERNATIONAL HRM

1
INTERNATIONAL HRM AN INTRODUCTION
2
Approaches to International HRM

• Early work emphasized a cross-cultural mgmt
  approach examined human behaviour within
  organization from an international perspective
• Comparative IR HRM literature seeks to
  describe, compare, analyze HRM systems in
  various countries
• Aspects of HRM in MNEs (We will use this first)

3
Defining International HRM

• Let us consider which activities (like HRP,
  staffing, performance management, etc.) change
  when HRM goes international
• Model of international HRM that consists of three
  dimensions
• 3 broad HR activities procurement, allocation
  utilization
• 3 national or country categories involved in
  international HRM activities host country where
  a subsidiary may be located, home country where
  the firm is headquartered, other countries
  that may be the source of labour or finance
• 3 types of employees of an international firm
  HCNs, PCNs, TCNs
• IBM employs Australian citizens (HCNs) in its
  Australian operations, often sends U.S. citizens
  (PCNs) to Asia-Pacific countries on assignment,
  may send some of its Singaporean employees on an
  assignment to its Japanese operations (as TCNs)

4
Defining International HRM

• Morgan defines international HRM as the interplay
  among these 3 dimensions HR activities, types
  of employees, countries of operation
• In broad terms international HRM involves the
  same activities as domestic HRM (e.g. procurement
  refers to HRP staffing), however, domestic HRM
  is involved with employees within only one
  national boundary
• The complexities of operating in different
  countries employing different national
  categories of workers is a key variable that
  differentiates domestic international HRM,
  rather than any major difference between the HRM
  activities performed
• Interestingly, domestic HRM is taking on some of
  the flavour of international HRM as it deals with
  a multicultural workforce thereby managing
  workforce diversity however, mgmt of diversity
  within a single national context may not
  necessarily transfer to a multinational context
  without some modification

5
Complexity of International HRM

• Complexity of international HR can be attributed
  to 6 factors that differentiate international
  from domestic HRM
• More HR activities
• Need for a broader perspective
• More involvement in employees personal lives
• Changes in emphasis as the workforce mix of
  expatriates locals varies
• Risk exposure
• More external influences

6
More HR activities

• Activities like
• international taxation,
• international relocation orientation,
• administrative services for expatriates,
• host-government relations,
• language translation services would not be
  necessary in a domestic environment, however, in
  an international environment, a HR dept. must
  engage in such activities

7
More HR Activities International Taxation

• Expatriates often have both domestic (i.e.
  home-country) host-country tax liabilities, so,
  tax equalization policies must be designed to
  ensure that there is no tax incentive or
  disincentive associated with any particular
  international assignment
• Administration of tax-equalization policies is
  complicated by the wide variations in tax laws
  across host countries by the possible time lag
  between the completion of an expatriate
  assignment the settlement of domestic
  international tax liabilities

8
More HR Activities International relocation

• Involves arranging for pre-departure training
  providing immigration travel details providing
  housing, shopping, medical care, recreation,
  schooling information finalizing compensation
  details such as delivery of salary abroad,
  determination of various international
  allowances, taxation treatment
• Many of these factors may be a source of anxiety
  for the expatriate require considerable time
  attention to resolve potential problems
  successfully certainly much more time than
  would be involved in a domestic transfer /
  relocation such as New York to Dallas, Taipei to
  Kaohsiung, etc.

9
More HR Activities Administrative services

• Providing administrative services can often be a
  time-consuming complex activity because
  policies procedures are not always clear cut
  may conflict with local conditions
• Ethical questions can arise when a practice that
  is legal accepted in the host country may be at
  best unethical at worst illegal in the home
  country
• Eg. host-country requires an AIDS test for a work
  permit for an employee whose parent firm is
  headquartered in the US where employment-related
  AIDS testing remains a controversial issue

10
Need for a Broader Perspective

• Because HR mgrs. working in an international
  environment face the problem of designing
  administering programs for more than one national
  group of employees (e.g. PCN, HCN, TCN
  employees who may work together in Zurich at the
  European regional headquarters of a U.S-based
  multinational), the need to take a broader view
  of issues
• E.g. of an equity issues a broader more
  international perspective on expatriate benefits
  would endorse the view that all expatriate
  employees, regardless of nationality, should
  receive a foreign service or expatriate premium
  when working in a foreign location
• However, many a times, HCN TCN employees
  perceive that PCN employees are given
  preferential treatment on these issues

11
More Involvement in Employees Personal Lives

• A greater degree of involvement in employees
  personal lives is necessary for the selection,
  training, effective mgmt of both PCN TCN
  employees.
• HR dept. needs to ensure that the expatriate
  employee understands housing arrangements, health
  care, all aspects of the compensation package
  provided for the assignment (cost-of-living
  allowances, premiums, taxes, etc.)
• In international setting, the HR dept. must be
  much more involved needs to know more about
  employees personal life in order to provide the
  level of support required.
• E.g. some govts. require the presentation of a
  marriage certificate before granting a visa to an
  accompanying spouse thus, marital status could
  become an aspect of the selection process,
  regardless of the best intention of the firm to
  avoid using a potentially discriminatory
  selection criterion.

12
Changes in Emphasis as the Workforce Mix of PCNs
HCNs Varies

• As foreign operations mature, the emphases put on
  various HR activities change
• The need for PCNs TCNs declines more trained
  locals become available with that, resources
  previously allocated to areas such as expatriate
  taxation, relocation, orientation are
  transferred to activities such as local staff
  selection, training devpt.

13
Risk Exposure

• Frequently, the human financial consequences of
  failure in the international arena are more
  severe than in domestic business
• E.g. expatriate failure (the premature return of
  an expatriate from an international assignment)
  is a potentially high-cost problem for
  international companies
• Direct costs (salary, trg. costs, travel
  relocation expenses) per failure to the present
  firm may be as high as 3 times the domestic
  salary plus relocation expenses, depending on
  currency exchange rates location of assignments
• Indirect costs such as loss of market share
  damage to international customer relationship may
  be considerable
• Terrorism is another aspect of risk exposure
  relevant to international HRM

14
More External Influences

• Major external factors that influence
  international HRM are the type of govt., the
  state of economy, generally accepted practices
  of doing business in each of the various host
  countries in which the multinational operates
• E.g. a host govt. can dictate hiring procedures
  as in the case in Malaysia during the 1970s the
  govt. introduced a requirement that foreign firms
  comply with an extensive set of affirmative
  action rules designed to provide additional
  employment opportunities for the indigenous
  Malays who constitute the majority of the
  population but tend to be underrepresented in
  business professional employment groups
  relative to Chinese Indian Malays

15
Variables Moderate Diff. between Domestic
International HRM

• So far, we have argued that the complexity
  involved in operating in different countries
  employing different national categories of
  employees, rather than any major differences
  between the HRM activities performed, is a key
  variable that differentiates domestic
  international HRM
• In addition to complexity, there are 4 other
  variables that moderate (i.e., either diminish or
  accentuate) differences between domestic
  international HRM these are
• Cultural environment
• Industry (industries) with which the
  multinational is primarily involved
• Extent of reliance of the multinational on its
  home-country domestic market
• Attitudes of senior management

16
Moderator Variable Cultural Environment

• Usually used to describe a shaping process, i.e.
  members of a grp / society share a distinct way
  of life with common values, attitudes,
  behaviours that are transmitted over time in a
  gradual, yet dynamic, process
• Culture is so subtle a process that one is not
  always conscious of its effect on values,
  attitudes, behaviours one has to be
  confronted with a diff. culture in order to fully
  appreciate this effect (like anyone traveling
  abroad experiences situations that demonstrate
  cultural differences in language, food, dress,
  hygiene, attitude to time where they experience
  culture shock a phenomenon experienced by
  people who move across cultures
• New environment requires many adjustments in a
  relatively short period of time, challenging
  peoples frames of reference to such an extent
  that their sense of self, especially in terms of
  nationality, comes into question
• People, in effect, experience a shock reaction to
  new cultural experiences that cause psychological
  disorientation because they misunderstand or do
  not understand important cues
• Culture shock can lead to negative feelings about
  the host country its people a longing to
  return home

17
Moderator Variable Cultural Environment

• Issues in cross-cultural or comparative
  researches
• Cross-national differences have been interpreted
  as cultural differences
• Concerns the emic-etic distinction
• Emic refers to culture-specific aspects of
  concepts or behaviour
• A Phonemic system documents meaningful sounds
  specific to a given language
• Etic refers to culture-common aspects
• A Phonetic system organizes all sounds that have
  meaning in any language

18
Moderator Variable Cultural Environment

• Both emic etic approaches are legitimate
  research orientations
• Major problem may arise, however, if a researcher
  imposes an etic approach (i.e. assumes
  universality across cultures) when there is
  little or no evidence for doing so
• E.g. of imposed etic approach is the convergence
  hypothesis that dominated much of U.S. European
  research in 1950s 1960s which is based on 2 key
  assumptions
• Principles of sound mgmt that held regardless of
  national environments thus the existence of
  local or national practices that deviated from
  these principles simply indicated a need to
  change these local practices
• Universality of sound mgmt practices would lead
  to societies becoming more more alike in the
  future given that the U.S was leading industrial
  economy, the point of convergence would be toward
  the U.S. model

19
Moderator Variable Cultural Environment

• Convergence Divergence Hypotheses
• Majority of convergence studies focus on
  macro-level variables (e.g. structure
  technology used by firms across cultures), the
  majority of the divergence studies focus on
  micro-level variables (e.g. the behaviour of
  people within firms)
• Although firms in different countries are
  becoming more alike (an etic or convergence
  approach), the behaviour of individuals within
  these firms is maintaining its cultural
  specificity (an emic or divergence approach)

20
Importance of Cultural Awareness

• Generally recognized that culturally insensitive
  attitudes behaviours stemming from ignorance or
  from misguided beliefs (my way is best or what
  works at home will work here) not only
  inappropriate but often cause international
  business failure
• Activities such as hiring, promoting, rewarding
  dismissal will be determined by the practices of
  the host country often based on a value system
  peculiar to that countrys culture
• A firm may decide to head up a new international
  operation with an expatriate general manager but
  appoint as the HR dept. manager a local a
  person who is familiar with the host-countrys HR
  practices
• This practice can cause problems, though, for the
  expatriate general manager, as happened to an
  Australian who was in charge of a new mining
  venture in Indonesia (Elaborate the example) or
  expatriate HR managers of a large firm in Papua,
  New Guinea who were concerned over a number of
  accidents involving operators of very large,
  expensive, earth-moving vehicles (Elaborate the
  example)

21
Industry Type

• International competition vary widely from one
  industry to another
• At one end of the continuum of international
  competition is the multi-domestic industry one in
  which competition in each country is essentially
  independent of competition in other countries
  (traditional examples include retailing,
  distribution insurance)
• In a multi-domestic industry then, international
  strategy collapses to a series of domestic
  strategies
• At the other end of the continuum is global
  industry one in which a firms competitive
  position in one country is significantly
  influenced by its position in other countries
  (e.gs. include commercial aircraft,
  semiconductors, copiers)
• Global industry is not merely a collection of
  domestic industries but a series of linked
  domestic industries in which the rivals compete
  against each other on a truly worldwide basis

22
Industry Type

• The issues that are uniquely international
  revolve around how to do business abroad, how to
  select good countries in which to compete (or
  assess country risk), mechanisms to achieve the
  one-time transfer of know-how
• Role of HRM function in multi-domestic global
  industries can be analyzed using Porters
  value-chain model in Porters model, HRM is
  seen as one of 4 support activities for the 5
  primary activities of the firm
• Since HRM are involved in each of the primary
  support activities, the HRM function is seen as
  cutting across the entire value chain of a firm

23
Industry Type

• If the firm is in a multi-domestic industry, the
  role of the HR dept. will most likely be more
  domestic in structure orientation
• At times there may be considerable demand on
  international services from the HRM function
  (e.g. when a new plant or office is estd. in a
  foreign location the need for expatriate
  employees arises), but these activities would not
  be pivotal (like many of these services may be
  provided via consultant /or temp. employees)
• Here the main role for the HRM function would be
  to support the primary activities of the firm in
  each domestic market to achieve a competitive
  advantage through either cost / efficiency or
  product / service differentiation

24
Industry Type

• If the multi-national is in a global industry,
  however, the imperative for coordination
  described by Porter would require a HRM function
  structured to deliver the international support
  required by the primary activities of the
  multinational

25
Industry Type

• Laurent proposes that a truly international
  conception of HRM would require the following
  steps
• An explicit recognition by the parent org. that
  its own peculiar ways of managing HR reflect some
  assumptions values of its home culture
• An explicit recognition by the parent org. that
  its peculiar ways are neither universally better
  nor worse than others but are different likely
  to exhibit strengths weaknesses, particularly
  abroad
• An explicit recognition by the parent org. that
  its foreign subsidiaries may have other preferred
  ways of managing people that are neither
  intrinsically better nor worse, but could
  possibly be more effective locally
• A willingness from HQs to not only acknowledge
  cultural differences, but also to take active
  steps in order to make them discussable
  therefore usable
• The building of a genuine belief by all parties
  involved that more creative effective ways of
  managing people could be developed as a result of
  cross cultural learning

26
Reliance of the MNE on its Home-country Domestic
Market

• When we look through lists of very large firms it
  is frequently assumed that a global market
  perspective would be dominant in the firms
  culture thinking. However, the size is not the
  only key variable when looking at a MNE the
  extent of reliance of the MNE on its home-country
  domestic market is also very important.
• In fact, for many firms, a small home market is
  one of the major motives for going
  international
• UNCTAD in its annual survey of FDI calculates
  what it refers to as an index of
  transnationality which is an average of ratios
  of foreign assets to total assets, foreign sales
  to total sales, foreign employment to total
  employment
• Based on this index of transnationality the most
  foreign-oriented MNE is Nestle with 87 of
  assets, 98 of sales, 97 of employees located
  outside Switzerland (others include, ABB,
  Electrolux, Unilever, Philips)

27
Reliance of the MNE on its Home-country Domestic
Market

• There isnt one U.S. firm in the top 15 MNE
  Coca-Cola McDonalds are ranked 31st 42nd
  respy
• Reason is as obvious as it is important the
  size of the domestic mkt. for U.S. firms
• A very large domestic market influences all
  aspects of how a MNE organized its activities
• E.g. a MNE will be more likely to use an
  international division as the way it organizes
  its international activities even if it uses a
  global product structure the importance of
  domestic mkt will be pervasive
• A large domestic mkt will also influence the
  attitudes of senior managers will generate a
  large number of managers with an experience base
  of predominantly or even exclusively domestic mkt
  experience