Learning Objectives
Understand various concepts often referred in international human
resource management.
Know the meaning of expatriate, understand the confusions over
the term and analyze the clarity over the concept.
Analyze the issues causing the hiccups in defining the term
international human resource management.
Defining and analyzing the term international human resource
management.
Discuss
the
difference
between
domestic
human
resource
management from international human resource management.
Chapter Four
IHRM – An Overview
1
Structure
1)
Introduction
2)
Concept of ‘Expatriate’ : Confusion in Usage.
3)
What is International Human Resource Management?.
4)
Domestic vs. International HRM.
5)
Conclusion
6)
Summary.
Chapter Four
IHRM – An Overview
2
4.1 Introduction
Before we embark on study of IHRM, let us know what it is, how
does it differ from HRM , is it a synonym for cross-cultural
management & what are often used specific terms like MNCs,
TNCs etc.
MNC – is an organization which operates in more than one country.
Transnational Corporation [TNC]- is an organization that produces,
markets, invests, and operates across the world.
Home Country / Parent country – is the one where the head quarters
of the MNC or TNC is located.
Host country – is the country where the branch or subsidiary of an
MNC/TNC is located.
Chapter Four
IHRM – An Overview
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4.1 Introduction
Parent [Home] Country Nationals [PCN]– are employees of an
MNC/TNC who are the citizens of home country / parent
country of the MNC / TNC.
Host Country Nationals [HCN] – are employees of an MNC/TNC
subsidiary, branch who are the citizens of the country where
the subsidiary or the branch of the MNC / TNC is located.
Third Country Nationals [TCN] – are employees of an MNC/TNC
or their subsidiaries , branches and are the citizens of those
countries which are not home country / parent country or host
country of the MNC / TNC
Chapter Four
IHRM – An Overview
4
4.1 Introduction
Advantages and disadvantages of employing citizens from
parent, host and third countries:
PCN Advantages:
Familiarity with the goals, objectives, policies, systems,
procedures and practices of the headquarters.
Effective liaison and communication with home office
personnel.
Easier exercise of control over the subsidiaries operations.
PCN Disadvantages:
Difficulties in adapting to the foreign language, culture and
environmental issues like socio economic, political & legal
conditions.
Chapter Four
IHRM – An Overview
5
4.1 Introduction
PCN Disadvantages:
Excessive cost of maintaining expatriate managers and their
families abroad.
The loss of jobs for host country.
Family adjustment problems and its adverse effects on
productivity of PCN.
HCN Advantages:
Familiarity with the culture and environment factors like socio
economic, political & legal conditions and with business
practices of the host country.
Lower cost of staff.
Chapter Four
IHRM – An Overview
6
4.1 Introduction
HCN Advantages:
Provides opportunities for human resource development of
HCNs leading to increase in their commitment and motivation.
HCN Disadvantages:
Difficulties in exercising effective control over the subsidiary’s
operations
Communication difficulties in dealing with the headquarters.
Lack of opportunities for gaining international or cross cultural
experience.
Chapter Four
IHRM – An Overview
7
4.1 Introduction
TCN Advantages:
Compromise between PCNs and HCNs
TCNs are usually career international business managers.
TCN are less expensive than PCN.
TCNs may be better informed about the host environment than
the PCN.
TCN Disadvantages:
Host country’s sensitivity with respect to nationals of specific
countries.
Local nationals are impeded in their efforts to upgrade their
own ranks and assume responsible positions in multi national
subsidiaries.
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IHRM – An Overview
8
4.2 Concept of ‘Expatriate’ : Confusion in Usage.
Dictionary meaning of expatriate is “ one who left the home land.”
The term expatriate from the point view of IHRM is the one
who is working and residing in a foreign country to serve the
tenure of foreign employment. Expatriate include i] foreign
employees working in domestic companies, ii] parent country
nationals working in MNC’s subsidiary, iii] third country
nationals working in MNCs and iv] host country nationals
working in the parent country of the MNC / TNC.
In short expatriate is an employee working and living in a foreign
country where he/she is non-citizen.
Some MNCs use the term inpatriate to denote those employees
transferred from subsidiaries to headquarters. But this term is
not to be conceptualized for study of IHRM.
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IHRM – An Overview
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Foreigner
Working in a
Domestic firm
Subsidiary national
Working in HQ
Expatriates
Third country national
Working in a
Subsidiary or HQ
Parent country
national working
In a subsidiary
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IHRM – An Overview
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4.2 Concept of ‘Expatriate’ : Confusion in Usage.
Work Permit: almost all the countries impose a restriction for
foreigners on right to work or seek employment in their
countries. The foreigners / non-citizens are normally required
to obtain work permit . It is a document issued by the
Government of the country concerned [mostly by the
Department of Immigration] granting right to foreigners to
seek employment in the country concerned.
Guest Employees: Foreigners with distinctive and rare skills are
invited to perform certain activities during a specified period.
Such foreign employees are called ‘Guest Employees’.
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IHRM – An Overview
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4.3 What is HRM?
Human Resource management is managing procurement,
development, compensation, integration and maintenance of
people of an organization in order to contribute duly to the
individual , organizational and social goals.
The significant HRM activities include :;
;
;
;
Job work design and job analysis.
Human resource planning.
Recruitment.
Selection, placement and induction.
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IHRM – An Overview
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4.3 What is HRM?
;
Performance management.
;
Training. & development
;
Career planning & development.
;
Remuneration and benefits.
;
Human relations [ motivation, leadership, morale, team work,
empowerment, grievance redress, cross-cultural management ,
social relations].
;
Industrial
relations
[union-management
negotiations,
participative management, disputes prevention and settlement.]
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IHRM – An Overview
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4.3 What is IHRM?
IHRM is not a new concept and in fact it is not the emergence of
recent phase of globalization. It is as old as the first phase of
the globalization. It is not the same as cross culture
management.
It is, however, true that the significance, popularity and complexity
of IHRM have been due to the current phase of globalization.
The strides of information technology have brought significant
changes in the scope and dimensions of IHRM.
A fully domestic company but employing a few foreign nationals,
MNC employing only host country national in its branches or
MNC employing only parent country national at HQ seems to
be outside the purview of IHRM. But that is not true!
Chapter Four
IHRM – An Overview
14
4.3 What is IHRM?
IHRM is also defined as an interplay among human activities
[procure, allocate and utilize] ; countries [home, host and
others] and types of employees [PCNs, HCNs and TCNs]. This
definition does not IHRM activities of immigration and foreign
national working in a domestic company.
Hence better definition is “performing HRM and its related
activities and arranging for related and necessary cultural and
immigration facilities for prospective and current employees,
by organizations operating in domestic or foreign countries.
Now we can seek differences between HRM and IHRM.
Chapter Four
IHRM – An Overview
15
4.4 Domestic Versus International HRM?
Types of Organizations
Domestic firms employing foreigners.
Parent companies.
Joint ventures.
Subsidiary company.
Others operating in foreign countries.
Types of Human Resources
International HR Activities
• Domestic HR / nationals of the
host country.
• Parent company nationals.
• Third country nationals.
• Other types of foreign employees.
Chapter Four
IHRM – An Overview
• Procuring. Developing.
• Compensating. Utilizing.
• Immigration/ Migration
• Socialization, Security.
• Repatriation. Deportation
• Cross cultural management
16
4.4 Domestic Versus International HRM?
Wider
Nationalities
Broader
Relationships &
complexities
Different approaches
of functions
International
HRM
Variety of
functions
Influence of
international
environment
Enduring
Complexities
of HRM
activities
Chapter Four
IHRM – An Overview
17
4.4 Domestic Versus International HRM?
1. Wider Nationalities
Culture that influences IHRM of a few countries is described here
Japan:
Japanese culture is based on peace and harmony. It ranks high
pragmatism, masculinity, uncertainty avoidance and power
distance. Japanese attach importance to loyalty, empathy and
guidance to subordinates. They emphasize on participative
management, consensus problem solving and decision making
and work like in a family system.
They avoid open expression and conflicts. Show devotion to
work, collective responsibility and high employee productivity.
Chapter Four
IHRM – An Overview
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4.4 Domestic Versus International HRM?
America:
Americans are mostly individualistic. Their behavioural aspects
include, risk taking, bold initiative, acting spontaneously,
outspoken, critical thinking, logical reasoning, clarity and
frankness, confronting and threatening.
In view of these, wide variations in their cultures, there are
major conflicting situations when Japanese work for the
American firms and Americans in firms in Japan.
Americans offend the indirectness and sensitivity of Japanese
who show patience. Japanese think that Americans have no
spiritual quality and little employee loyalty.
Chapter Four
IHRM – An Overview
19
4.4 Domestic Versus International HRM?
Germany:
Though the Germans rank high on individualism, the behaviour of
Germans is less individualistic than that of Americans. They
are high on uncertainty avoidance , masculinity, and less on
power distance. Germans prefer to move around familiar
people and situations. They delve on detailed evaluation before
committing themselves.
They are more rule minded and strict with the use of time. Decision
making is not highly centralized and in fact is by consensus.
They follow strict departmentalization, division of work,
closed door policy. German is a low context society and
communication is explicit.
Chapter Four
IHRM – An Overview
20
4.4 Domestic Versus International HRM?
South Korea:
Koreans are high on collectivism and pragmatism, low on
masculinity, moderate on power distance and high on
uncertainty avoidance.
They follow traditional Confucian teachings of spiritualism
and collectivism. They respect family, authority, formality,
class and rank in the society. They are aggressive hard
working, demonstrative, friendly and hospitable.
They emphasize on family relationships, personal relationships
network etc. Business is based on honour and trust and most of
the contracts are oral. They like praise but not criticism.
Chapter Four
IHRM – An Overview
21
4.4 Domestic Versus International HRM?
Saudi Arabia:
Islam permeates Saudi life. Allah is always present , controls
everything, and is frequently referred to in conversation.
Employees spend more than two hours a day in prayer. Work
culture / behaviour is mixed with religion, politics and social
life. contracts are oral. They like praise but not criticism.
Arab culture has norms of reciprocity of favours, support and
obligation. Family relation and personal relations are close.
Outsiders have to establish trusting relationship and honour
before establishing any business relationships.
Use of swear words , commenting on a man’s family or grown
up children, use of alcohol are all banned. Sexes are to be
separated.
Chapter Four
IHRM – An Overview
22
4.4 Domestic Versus International HRM?
China:
Small business is peculiar to China and the extended families run
the small businesses. Members of the extended family are also
partners in different stages of supply and value chain. Guanxi
is prevalent in China that indicates the network of relationships
that the Chinese cultivate through friendship, exchange of
favours and
gifts to provide an obligation to reciprocate
favours.
Major difference between Chinese management style and the
Western management style is the human centeredness that put
people ahead of business relationship, but based on friendship,
loyalty and trust.
Chapter Four
IHRM – An Overview
23
4.4 Domestic Versus International HRM?
India:
Indians are high on collectivism in case of family relations and
individualistic at work place. Family relations and social
relations are strong. They are also high on power distance and
masculinity. They respect family authority, social class and
rank. They are aggressive , hard working, demonstrative,
friendly and hospitable. They meet challenges and thrive on
for goals. Business is based on trust and honesty and most of
the contracts are oral. Indians are loyal to the organization.
HR managers are well aware of the culture of their home country.
When they have to deal with nationals
of other countries in their home country or abroad, they should
understand the culture of the countries
to which their colleagues belong.
Chapter Four
IHRM – An Overview
24
4.4 Domestic Versus International HRM?
2. Broader Relations and Complexities
When dealing with cross cultural employees under IHRM, HR
manager needs data on broader aspects of the employees and
their families. This additional data allows the HR manager to
arrange visa, work permits, suitable accommodation and
socialization of foreign employees & their families. He has to
assist them for their shopping, hotels, education, entertainment
and visits to religious places [ church for Catholics].
Thus international HRM does result in more complexity in
understanding people, managing them, meeting their wider
needs and providing all kinds of security , in addition to
building and developing wider relations.
Chapter Four
IHRM – An Overview
25
4.4 Domestic Versus International HRM?
3. Influence of International Environment
International environment has become complex, highly competitive,
dynamic, vibrant, intertwined and interdependent. With
globalization difference between domestic and international is
narrowing. Regional integration has resulted in free flow of
human resource from poor to rich countries and brought down
average wages & increased unemployment in developed
countries.
Stride in business processes like e-business has changed the
business processes and patterns from procuring raw materials
to the stage of selling, and outsourcing, call centers , post sales
service etc. This increased the demand for international human
resources but reduced their physical flow. This enhanced the
role of IHRM which now has to blend HRM of both the
countries.
Chapter Four
IHRM – An Overview
26
4.4 Domestic Versus International HRM?
3. Influence of International Environment
Further information technology allows location of manufacturing
centres in various countries with help of computer aided
manufacturing techniques , thus creating opportunities for
employment in various countries. Large scale out sourcing
resorted to by MNCs also increased employment in domestic
companies in countries like India, China Vietnam and
Malaysia.
Many cases HR functions for this workforce is carried by HR
personnel of the respective MNC headquarters. This brings
IHRM into play.
Political liberalization has narrowed gulf between capitalism and
communism removing entry barriers for MNCs behind so
called iron curtain. IHRM scope is thus enhancing is changing
based on political & economic environment of home, host and
other countries.
Chapter Four
IHRM – An Overview
27
4.4 Domestic Versus International HRM?
4. Enduring Complexities of IHRM Activities
With globalizations we observed MNCs are employing nationals as
well as expatriates. This has resulted into IHRM becoming
complex as it has to practice different HR policies for nationals
and expatriates.
Increased salary levels, dependent on country of origin, are
necessary for expatriates who have to get assimilated into a
foreign culture. The motivational techniques, leader follower
interactive techniques would also differ for nationals and
expatriates. These different treatments have to be managed
tactfully under IHRM, without causing any frustration to
nationals in the organization. This a continuous and complex
task.
Chapter Four
IHRM – An Overview
28
4.4 Domestic Versus International HRM?
4. Enduring Complexities of IHRM Activities
Even among expatriates, it is always not prudent to have a uniform
compensation package. These significant variations in
salaries, benefits, motivation, retaining strategies, treatment,
interpersonal relations and approach towards employees vary
based on the country of origin and create complexities in
IHRM.
In addition, salary increases provided on the basis of job
performance are also viewed by employees through such
discriminatory lenses.
IHR managers are required to conduct counseling sessions to make
employees realize philosophy, reasoning and need for payment
of such differential salaries and benefits.
Chapter Four
IHRM – An Overview
29
4.4 Domestic Versus International HRM?
5. Variety of Functions.
Additional functions under IHRM : Information about cultures, employee families.
Exhaustive data regarding culture, currency, repatriation of
funds procedures, medical or educational facilities, economy,
income tax structure, has to be provided to prospective
candidates.
Checking the record of terrorist / Criminal Activities.
On-line selection techniques and process.
Chapter Four
IHRM – An Overview
30
4.4 Domestic Versus International HRM?
5. Variety of Functions.
Additional functions under IHRM : - contd.
Immigration Information.
Immigration compliance. Air Ticketing
Receiving candidates on arrival.
Conducting language classes and arranging translators.
Designing Salary Packages to suit country specific tax
structure.
Special training.
Liaison with Immigration Officials.
Chapter Four
IHRM – An Overview
31
4.4 Domestic Versus International HRM?
6. Different Approaches to Domestic HRM Functions:
HR functions like Recruitment, Selection, Induction and Placement,
or Training & development or Salary Administration &
benefits or Retention management & Maintenance all require
different approaches as employees are from different countries
and hence approach for each activity has to be tailor made for
the country of origin of the employee.
Remuneration function and policy has to be different for national
and expatriates as their needs are totally different. Even among
expatriates the remuneration has to be designed for the country
of origin.
Chapter Four
IHRM – An Overview
32
4.5 Conclusion
Variety of complexities, operations and functions are involved
under IHRM and hence it is difficult to define IHRM.
IHRM differs from domestic HRM in six major dimensions like :wider nationalities of employees
variety of functions to be performed.
influence of international environment.
broader and deeper relationships.
different approaches to the domestic functions and
enduring complexity of international HRM.
Chapter Four
IHRM – An Overview
33
4.6 Summary
Ô
Ô
Ô
Ô
Ô
MNC is an organization which operates in more than one
country.
Transnational corporation TNC is an organization that
produces, markets, invests and operates across the world.
Home Country / Parent Country is the one where the
headquarters of the MNC or TNC is located.
Host Country is the one where the subsidiary / branch of an
MNC / TNC is located.
Home country nationals are employees of an MNC/TNC who
are the citizens of home / parent country of that MNC/TNC ,
but working in a subsidiary / branch in host country.
Chapter Four
IHRM – An Overview
34
4.6 Summary
Ô
Ô
Ô
Ô
Host country nationals are employees of an MNC/TNC
subsidiary / branch who are the citizens of the country where
the subsidiary / branch of MNC /TNC is located.
Third country nationals are employees of an MNC/TNC or
their subsidiary / branch and are citizens of those countries
other than the MNC /TNC’s home or host country.
Expatriate is an employee working and living in a foreign
country where he/she is a non-citizen.
Work permit is a document issued by the Government of the
country concerned [mostly by the department of immigration]
granting right to foreigners to seek employment in the country
concerned.
Chapter Four
IHRM – An Overview
35
4.6 Summary
Ô
Ô
Ô
Persons with distinctive and rare skills are invited to perform
certain activities during a specified period . Such foreign
employees are called ‘guest employees.’
IHRM is defined as , performing HRM and its related activities
and arranging for related and necessary immigration facilities
for prospective and current expatriate employees, by
organizations operating in domestic and/or foreign countries.
Domestic is different from International HRM due to various
aspects like i] wider nationalities of employees, ii] variety of
functions to be performed, iii] influence of international
environment, iv] broader and deeper relationships, v] different
approaches for the domestic functions and vi] enduring
complexity of international HRM.
Chapter Four
IHRM – An Overview
36
This brings us to the end of this fourth session on
“International Human Resource Management
– An Overview”
Next we move to the fifth session on chapter five
“International Human Resource Planning
Good Luck!
Chapter Four
IHRM – An Overview
37