What is International HRM (Human Resource Management)?

International Human Resource Management (HRM) explores the management of employees across diverse cultures and countries in multinational organizations. This overview covers key concepts, objectives, and practices, highlighting the complexities of cultural dimensions, selection processes, training, and the challenges faced by organizations in a global context.

International Human Resource Management (HRM): A Comprehensive Overview

International HRM (Human Resource Management) involves managing employees in multinational organizations across different countries and cultures. It focuses on HR functions such as recruitment, training, development, and compensation, while addressing cultural diversity, global labor laws, and the unique challenges faced in international business environments.

1. What is International Human Resource Management?

IHRM is the process of employing, training, developing, and compensating employees within multinational and global organizations. It focuses on applying typical Human Resource Management (HRM) functions—like recruitment, selection, training, and performance appraisal—at an international level.

• Meaning: International Human Resource Management is the process of managing employees in global organizations across different countries and cultures.
• Definition: “International HRM (Human Resource Management)” refers to the planning, recruiting, developing, and managing of employees who work in multinational companies or across international borders. It focuses on handling cultural diversity, global training, compensation, and international labor laws.

Key Definitions:

• Hugh Scullion: IHRM encompasses the HRM issues and problems arising from the internationalization of business, and the corresponding HRM strategies, policies, and practices that firms adopt.
• Another perspective: IHRM is the systematic planning and coordination of fundamental organizational processes (job design, staffing, training, appraising, rewarding, and protecting human resources) in an organization’s foreign operations.
• Edwin B. Flippo (on global/domestic HRM): It involves the planning, organizing, directing, and controlling of procurement, development, compensation, integration, and maintenance of people to achieve organizational, individual, and social goals.

Global Context:

• Successful international ventures depend heavily on the effective management of global employees, a challenging task involving the procurement, training, and retention of staff across different geographical locations.
• An international company has subsidiaries outside its home country, relying on the parent company’s expertise or manufacturing. A Multinational Corporation (MNC) typically has multiple businesses in different countries but is managed centrally from a single headquarters.

2. The Concept of IHRM

The concept of International HRM (Human Resource Management) is a modern evolution of traditional HRM, spurred by increased international trade and widespread globalization. It is concerned with managing all HR activities in global organizations without being constrained by geographic borders.

IHRM is an interplay among three dimensions:

1. Human Resource Activities: HR planning, procurement, training and development, induction, compensation, performance management, and industrial relations.
2. Types of Employees:
   • Parent Country Nationals (PCNs): Citizens of the country where the MNC headquarters is located (expatriates).
   • Host Country Nationals (HCNs): Citizens of the country where the subsidiary is located.
   • Third Country Nationals (TCNs): Citizens of a country other than the home or host country.
3. Countries of Operation:
   • Home Country: Where the company’s headquarters is located.
   • Host Country: Where the subsidiary is located.
   • Other Countries: Sources of finance or labor.

3. Objectives of IHRM

Given the differences in the organizational environment across nations, IHRM aims to:

1. Develop managerial skills, organizational knowledge, and technical abilities of HR managers and employees.
2. Enhance the management of global business operations.
3. Manage and secure employee performance, compensation, and career progression.
4. Organize cross-cultural counseling and language training programs.
5. Foster a practical understanding of global work practices.
6. Improve performance management systems for human resources.
7. Maximize opportunities within the global HR landscape.
8. Develop competitive HR strategies in the global arena.
9. Reduce cultural differences to promote an amicable work environment.

4. Activities and Cultural Dimensions

The three major IHRM activities—Procure, Allocate, and Utilize—encompass all six domestic HRM activities (HR planning, Employees Hiring, Training and Development, Remuneration, Performance Management, and Industrial Relations).

International Staffing Challenges

Staffing is significantly more complex in international operations due to:

• Mix of Staff: Deciding on the appropriate balance between local employees (HCNs) and expatriates (PCNs/TCNs).
• Cost: The cost of hiring, relocating, and compensating international employees is very high, making selection errors extremely costly.
• Compensation and Tax Laws: Expat compensation and tax regulations are critical factors, with tax treaties affecting the feasibility of hiring from certain countries.
• Environmental Factors: Political changes in the host country can affect expat movement and staffing strategies.

The Cultural Challenge

Managing staff from diverse national cultures is a major IHRM challenge, requiring extensive cross-cultural training.

Hofstede’s Cultural Dimensions are a key framework for understanding national culture differences:

1. Power Distance Index (PDI): The extent to which less powerful society members accept and expect power to be distributed unequally.
2. Individualism versus Collectivism (IDV): Preference for a loose social framework (individual care) versus a tight framework (group loyalty).
3. Masculinity versus Femininity (MAS): Preference for achievement/assertiveness (Masculinity) versus cooperation/quality of life (Femininity).
4. Uncertainty Avoidance Index (UAI): The degree to which a society feels uncomfortable with uncertainty and ambiguity.
5. Long-term Orientation versus Short-term Normative Orientation (LTO): Pragmatic future-focused approach (LTO) versus maintaining time-honored traditions (Short-term).
6. Indulgence versus Restraint (IND): Allowing relatively free gratification of basic human drives (Indulgence) versus regulating needs through strict social norms (Restraint).

5. Selection Process for International Assignments

International postings involve significant pressure and require a rigorous selection process, as local dynamics and cultural pressures vary. Successful expat selection criteria include:

1. General and Technical Criteria: Reliance on relevant technical skills, management talent, emotional stability, maturity, and strong communication skills.
2. Language Skills: Knowledge of the host-country’s language is often crucial for effective communication and performance.
3. Cross-Cultural Suitability: The ability to adapt to change, translate skills into a foreign environment, and get along with local people while respecting customs (interpersonal skills, tolerance for ambiguity, non-judgmental behavior).
4. Motivation for a Foreign Assignment: A belief in the job’s importance and a sense of mission. Candidates seeking to escape current problems at home rarely succeed.
5. Family Situation: The adaptability and positive opinion of the spouse and family is often the most critical factor contributing to an expat’s success or failure.

6. Training and Development in IHRM

Careful selection must be followed by proper training to ensure an assignee’s success and readiness for the foreign assignment.

A. Orientation

International positions require extensive orientation to cover culture, language, and unique aspects of the assignment.

• Pre-Arrival Orientation: Includes cultural briefing (customs, living conditions, health), assignment briefing (length, compensation, repatriation policy), shipping requirements, and intensive Cross-Cultural Training to prevent culture shock.
• Post-Arrival Orientation: Assistance with “settling in,” such as finding housing, establishing bank accounts, and arranging school admissions for children.

B. Career Development

Expatriate motivation depends on two factors:

1. Career Progression: Whether the assignment offers new learning, knowledge expansion, and vertical growth within the firm upon return.
2. Headquarters Support: Regular contact and support from headquarters to prevent the “out of sight, out of mind” anxiety.

Strategies to support career development include:

• Monitoring System: A senior executive at headquarters mentors the expat, ensuring their inclusion in promotion discussions and resolving headquarters-related problems.
• Occasional Home Office Visits/Mini-Sabbaticals: To maintain a sense of belonging and keep the expat updated on headquarters happenings.

7. MNCs Approach to IHRM

MNCs adopt different strategies for managing their international human resources:

1. Ethnocentric Approach:
   • Focus: Home country practices and policies are transferred to foreign subsidiaries.
   • Staffing: PCNs (expats from the home country) manage foreign subsidiaries.
   • Control: Tight control by the MNC headquarters.
   • Example: McDonald’s.
2. Polycentric Approach:
   • Focus: Subsidiaries operate independently, with HR policies adapted to local circumstances.
   • Staffing: HCNs (local managers) are hired to manage local HRM activities.
   • Control: Subsidiaries have considerable autonomy; HCNs are rarely promoted to HQ positions.
3. Region-Centric Approach:
   • Focus: Regional grouping of subsidiaries with coordinated HR policies within that region.
   • Staffing: Managers from any country within the region may staff the subsidiaries.
   • Control: High coordination within the region, but limited connection between the region and the MNC headquarters.
4. Geocentric Approach:
   • Focus: Developing HR policies to meet the goals of the global network as a single international business entity.
   • Staffing: The best individual for the job is chosen, regardless of their nationality (PCNs, HCNs, or TCNs).
   • Control: Focused on maximizing global results, with policies applied universally or adapted as needed.

8. Practices of International Human Resource Management

Key areas of concern in IHRM practices include:

i. International Staffing

Selection of the most appropriate employees for international operations, using three sources:

• Parent Country Nationals (PCNs): Citizens of the headquarters country. Hired for key/top-level positions to ensure linkage with headquarters. Costly due to relocation.
• Host Country Nationals (HCNs): Citizens of the subsidiary country. Often occupy middle/lower management. Cost-effective, no extra cross-cultural training needed.
• Third Country Nationals (TCNs): Citizens of a third country. Hired based on ability, often possess substantial international experience.

The staffing approach aligns with the MNC’s overall strategy (Ethnocentric, Polycentric, or Geocentric).

ii. Pre-Departure Training for International Assignments

Essential due to cultural differences, this training prepares employees (and their families) for relocation and job success.

• Focus: Skills for the international assignment, understanding cultural differences, and the socio-political environment.
• Key Aspects: Language training, training to manage personal and professional life, and cultural training (expatriation).

iii. Repatriation

The process of bringing expatriates back to the home country.

• Challenge: Expatriates often face anxiety regarding readjustment, re-entry into old positions, and career stagnation (“out of sight, out of mind”).
• Solution: A repatriation agreement specifying foreign posting tenure, return job/portfolio, and expected salary. Assigning a senior manager as a mentor for career guidance.

iv. Performance Management in International Assignments

Performance evaluation must account for various factors (motivation, skills, working conditions).

• Key Requirements: Clearly communicated standards and tasks, and the provision of cross-cultural and technical training.
• Major Problem: Dual loyalty (to home and host country) and a lack of regular communication can make it difficult to assess the employee’s contribution accurately.

v. Compensating Expatriates in International Assignments

This is one of the most complex aspects, requiring adherence to local and international compensation norms.

• Goal: Compensation must be just, fair, equitable, and motivational.
• Design Considerations: Needs and aspirations of the expatriate (e.g., Americans value performance-linked pay; Japanese/Indians value non-financial incentives like prestige).
• Package Components: Cost of living adjustments, incentive benefits, travel/relocation allowance, home leave, currency differential payments, hardship posting allowances, health benefits, and coverage for housing/schooling.

9. Challenges and Emerging Issues in IHRM

IHRM faces several complex issues in the global HR environment:

1. Ethics and Corporate Social Responsibilities (CSR): Balancing the ethics and morals of the home country with those of the host country, especially regarding profitability versus social impact.
   • Ethical Relativist: No absolute right or wrong; context-dependent. Risk of long-term disaster.
   • Ethical Absolutist: Strongly influenced by home country practices; little respect for host culture. Criticized for arrogance.
   • Ethical Universalist: Belief in fundamental rules that differentiate right from wrong, applicable in all countries. Distinguishes cultural difference from moral wrong.
2. Bribery: MNCs, especially from developed countries, have been accused of bribing foreign officials. Laws like the US Foreign Corrupt Practices Act (FCPA) aim to combat this.
3. Code of Conduct for International Business: Efforts like the Caux Roundtable Conference on ‘Principles for Business Conduct’ (1994) work to establish ethical codes for benchmarking global business practices, focusing on free trade, environmental integrity, and preventing bribery/corruption.

10. Suggestive Measures for IHRM

To enhance international HRM (human resource management):

• Design Motivational Compensation Packages: Ensure compensation is competitive, incorporating components such as cost of living adjustments, incentive benefits, and hardship posting allowances.
• Recognize Individualism vs. Collectivism: Be aware of customs regarding social interaction and support frameworks in different societies.
• Overcome Ethical and Legal Conflicts: Develop an understanding of how these conflicts impact managerial and organizational effectiveness.
• Establish Trust through One-to-One Relationships: Encourage informal discussions, social events, and retreats to build trust among members of partner organizations.
• Develop Basic Cultural Knowledge: Foster an understanding of how different cultures work, what makes them unique, and how they influence attitudes and behaviors globally.
• Involve Stakeholders: Include group leaders, HR managers, staff, and employees in determining and implementing HR plans and strategies.
• Develop a Learning Strategy: Promote training programs, cooperative tendencies, and innovative ideas for career-oriented HR practices.
• Develop Effective Cross-Cultural Communication Skills: Focus on the relationship between language, logic, and communication patterns in a global context.
• Promote the Geocentric Approach: Focus on skills, competencies, abilities, and efficiencies for global assignments, giving little attention to nationality in HR staffing.
• Manage Pre-Departure Training Programs: Continuously develop and implement comprehensive pre-departure training to equip employees with necessary knowledge and skills for foreign assignments.