MODULE-1

International
Human Resources

Management
 Evolution of IHRM
• IHRM got it importance after 1990 (international business stage)
• Till 1990 the subsidiary in foreign countries were managed by the home
country- all the post were filled by home country employees.
• But after 1990 companies started filling their vacancy/positions not only
from home country but started giving importance to host country and also
for third country nationals.
• Companies stated giving importance for knowledge and skills of
employees not the place of employees.
• But still many companies till today the top positions are controlled by
home country nationals
Regarding evolution of IHRM Evans et al (2002)state that three distinct phases can be
identified in the history of this field:

• The first, so called pre scientific period :the beginning of the 20thcentury. were already
some international ventures (eg. the East Indian Corporation, or the shipping
companies), but during these years IHRM was not in the focus of management
attention.

• first real era of IHRM dates back to the period when the first companies established
their offices and Subsidiaries abroad. At the beginning of World War I dozens of
companies Operated already on an international field. The globalization of business
forced companies to send expatriates into management or consultant positions to their
foreign concerns. By the 1960's the 180 examined American companies had an average
of 6 subsidiaries abroad (Evans et al, 2002). This significant growth urged companies to
increase the number of their expatriates to a great extent.
• War veterans, who spoke foreign languages, were not always the appropriate persons, who
would be able to transfer knowledge and experience abroad. In this 2ND period it became clear
that in order to be successful in globalization it is indispensable to adapt various national
cultures. In the above period knowledge sharing between headquarters and foreign concern
had a typical hierarchical form. The direction of knowledge flow was from headquarters or
regional centers to subsidiaries.

• The third period of IHRM started at the end of the 1980's, when globalization became even
stronger. As a result of globalization companies were striving even stronger to implement
network based solutions, instead of hierarchical knowledge transfer and coordination. A
special feature of this localization procedure was that the HRM departments were mainly led
by locals even at the time when other management positions were rather filled by foreign
managers. Besides expatriates more and more inpatriates appeared in multinational companies
(that is, locals delegated from subsidiaries to headquarters).
Scullion (1995,)points out is of growing importance for number of reasons:

1.Recent years have seen a rapid increase in global activity and global competition's the MNCs

increase in number and influence, so the role of international HRM in those companies grows

in significance.

2.The effective management of human resources internationally is increasingly being recognized

as a major determinants of success or failure in international business.

3.Research evidence shows that :

• Storage of international managers is becoming an increasing problem for international firms

• To a large extent the successful implementation of global strategies depends on the existence

of an adequate supply of internationally experienced managers.

• Business failures in the international arena may often be linked to poor management of human

resources
 Definition of IHRM
• According to Peter Dowling –

“IHRM is the process of procuring , allocating, effectively utilizing of human

resource in a multinational corporation, while balancing the integration and
differentiation of HR activities in foreign locations.

• Simple definition is ‘the process of managing people in international settings’

• Scyllion defined IHRM as “the HRM issues and problems arising from the
internationalization of business, and the HRM strategies, policies and

practices which firms pursue in response to the internationalization process”

1. Broad human resource activities of procurement, allocation, and
utilization.

a) The national or country categories involved

• The host country where subsidiary country may be located
• The home country where the firm is headquartered
• Other countries that may be the source of labor, finance and other inputs.

b.)The three categories of employees

• Host country nationals (HCNs)
• Parent country nationals (PCNs)
• Third country nationals (TCNs)

3. IHRM is defined as interaction between the three group of factors-Type of

employees, environment of countries, and basic HR processes.
 Dimensions of IHRM:
According to P.V. Morgan: IHRM is the
interplay among 3 dimensions:
• HR Activities
• Types of employees
• Types of Countries
The Drivers Of Internationalization Of Business/reasons for emergence of
IHRM
1.Globalization of Markets:

2.Globalization of Production:

3.Falling Barriers to Trade and Investment:

4.Technological Innovation:

5.Globalization competition

6.Custmer demand

7.Cost saving and resource access

8.Growth in merger, acquisitions and alliance

9.Need of effective managers

10.incentives
 The different setting/STAGES of International Human
Resource Management.

Stage 1: Domestic Operations:

Firms offer products or services that are designed to primarily serve consumers in the
domestic market.

Stage 2: Export Operations :

production in home country marketing in other country. Usually handled by an
intermediary (foreign agent or distributor)
• HRM: Provides sales force with skills and motivation to succeed in these foreign markets.

Stage 3 :Subsidiaries or Joint Ventures:

Some operational facilities are physically moved to other countries. Corporate
headquarters in home country has high control over foreign operations in the market
countries
• HRM: Provides expatriates and local employees with knowledge and skills to succeed in
the foreign country
Stage 4: Multinational Operations:
• Much more prevalent international dispersion of production and service provision
facilities.
• Decentralization of decision-making more prevalent, but ―major personnel
decisions still made within home country.
• Operation activity carried in more then two or three nations.
• Expatriates still primarily manage foreign facilities

Stage 5: Transnational Operations

Each business unit across the globe has the freedom to make and implement
its own HR Policies and practices.

strategy is a management approach in which an organization integrates its global

business activities through cooperation between headquarters and international
operations.

• Dominant role of expatriates is removed

• Large-scale decentralization of decision-making
 Development of IHRM :

1.Global competition

2. Growth in mergers, acquisitions and alliances

3. Organization restructuring

4.Advances in technology and telecommunication

5.Global competition

6.Levels of competition are increasing with the spread and diversity of international
business.

7. Cross cultural issues

8. Downsizing

9. issues related to business ethics and social responsibility has become major concern
for HR manager
 Difference
Domestic HRM
• Employees within one national
boundary.
• Routine work pattern.
• Not much difference and variation
in compensation
• Public relations work taken care
by employees themselves.
• In unusual and difficult situation
locals can take care of themselves
International HRM
• Employees from different countries.
• constant attention on adjustment matters in
living conditions and work ethics.
• Compensation based on taxation matter and
parity of emoluments with equivalents in
organization.
• Public relation taken upmost care by proving
various facilities to its employees like health, get
school admission etc .
• Extra care should be take up by the seperate
department call HR department bcz of foreign
national in terrorism, natural calamities etc.
• It deals with the issues • Address the broad range of hr
relating to single country activities relating to issues of 3
countries

• Greater risk involved compare

• Less risk is involved
to human and financial
consequences

• Deals with more external

• Deals with less external factors like govt regulating ,
factors staffing practice in foreign
location, local codes of conduct
etc

• Involvement of HR • Involvement of HR mangers in

mangers in employee employee family is high like
family is limited relocating employee family ,
adjust to foreign culture etc
 Approaches to IHRM
1. Ethnocentric approach
2. Polycentric approach
3. Regiocentric approach
4. Geocentric approach
 Ethnocentric approach
1. In Ethnocentric Approach, the key positions in the organization are filled with the employees of the
parent country.
2. All the managerial decisions viz. Mission, vision, objectives are formulated by the MNC’s at their
headquarters, and the same is to be followed by the host company.
3. The general rationale behind the ethnocentric approach is that the staff from the parent country would
represent the interests of the headquarters effectively and link well with the parent country
Advantages of Ethnocentric Approach
• Better coordination between the host and the parent company.
• The culture of the parent company can be easily transferred to the subsidiary company, thereby infusing
beliefs and practices into the foreign country.
• Effective control over the subsidiary.

Disadvantages of Ethnocentric Approach

• The staff of the parent country may find it difficult to adjust in the host country due to the cultural
differences
• the expatriates from the parent country are much expensive as compared to the employees in the host
country
• The failure rate is very high.
 Polycentric Approach

• the nationals of the host country are recruited for the managerial positions to carry out the operations of the
subsidiary company.
• this approach is to reduce the cost of foreign operations gradually.
• The rationale behind this approach is that the locals of the host country know their culture better and can
run the business more efficiently as compared to their foreign counterparts.

Advantages of Polycentric Approach

• The difficulty in the adjustment of expatriates from the parent country gets eliminated.
• The hiring of locals or the nationals of the host country is comparatively less expensive.
• The morale of the local staff increases.
• Better productivity due to better knowledge about the host market.
Disadvantages of Polycentric Approach
• he lack of effective communication between the staff members of both the host and the parent company,
due to the language barrier.
• Difficult to exercise control over the subsidiary.
• Lack of knowledge about the market conditions of the host country.
• The conflict may arise between the managers of both the host and the parent company due to the different
 Regiocentric Approach
• the managers are selected from within the region of the world that closely resembles the host country.

Advantages of Regiocentric Approach

• Culture fit, i.e. the managers from the same region as that of the host country may not encounter any
problem with respect to the culture and the language followed there.
• Less cost is incurred in hiring the natives of the host country.
• The managers work well in all the neighboring countries within the geographic region of the business.

Disadvantages of Regiocentric Approach

• The managers in different regions may not understand the viewpoint of the managers employed at the
headquarters.
• There could be a communication barrier because of different languages.
• The manager selected from a particular region may lack the international experience.
 Geocentric approach
• operations, recognizing that each part (subsidiaries and headquarters) makes a unique contribution with its
unique competence.
• This approach subscribes the view of employing the best people in key positions throughout the organization
without the consideration of any nationality
• Companies that are truly global in nature adopt this approach since it utilizes a globally integrated business
strategy.

Advantages of Geocentric Approach

• MNC’s can develop a pool of senior executives with international experiences and contacts across the borders.
• The expertise of each manager can be used for the accomplishment of MNC’s objective as a whole.
• Reduction in resentment, i.e. the sense of unfair treatment reduces.

Disadvantages of Geocentric Approach

• The cost of training, compensation, and relocation of an employee is too high.
• Highly centralized control of staffing is required.
• Proper scrutiny is required by the HR to select the most suitable person for the job, which could be time-
consuming.
Modules of IHRM

Matching
Harvard module
module

Contextual
module

5-p module

European
module
 Models of IHRM
1. Matching model (utilization of human resource – right fit of employees)
2. Harvard model (employee-employer relationship)
3. Contextual model (linkages b/n internal and external environment)
4. Five P’s model (5 HR activities – Philosophy, Policies, Programs, Practices,
Processes)
5. European model (follow the European orgn policies – They are constrained
with both international and national level of culture and legislation. Trade
union involvement and consultative arrangement are the two important HRM
activities they follow)
Matching model
• Matching model was developed at Michigan Business School by Fombrun, Tichy and Devanna et al.

• Matching model illustrates that the strategic HRM emphasizes on the relationships between human
resource management, organizational structure and strategy and the environment external like political
forces, economic forces ,cultural forces to an organization .

• It suggest the people in organization are managed accordingly to organizational requirement of quality and
effectiveness.

1. Focuses on Human, Soft aspect of HRM

2. Emphasize on efficient utilization of human resources to meet organizational objectives (employee-

employer relationship).

3. Right fit between organizational strategies, organizational structure and HRM systems will result in
success.

4. Also highlights the interests of different stakeholders of organization-shareholders, management,

employee groups, government, community, unions
Limitations:

1.All organizational controllers act rationally as per matching model but as many
critical organizational theorists attest ,strategic decisions are not necessarily based on
the output of rational calculation.

2.The matching model categorized as a “hard” model of HRM Because it over looks
“human aspect" of HRM and does not take into account of significant variations in
power, policies and culture.

3.To further pursue the question whether a matching of business and HRM strategies is
necessary desirable. Boxall argues that “excessive fit” can be disadvantageous to
gaining competitive advantage .it can make a company inflexible and capable of
adapting quickly to the external environment.
Harvard Model
• Harvard Model developed by Harvard University by prof.Michael Beer.

The model illustrates the influence of situational factors on stake-holder interests, and their
impact on human resource policy choices which are destined to deliver a raft of
predetermined human resource outcomes such as commitment, competence, congruence and
cost-effectiveness.

1. Harvard Model opens a avenues for a sophisticated analysis of how the people management

function might have an impact on business strategy

2. these outcomes consequently produce long-term and sustainable benefits for the individual, the

organization and society.

3. The Matching and Harvard  models were often compared and contrasted in terms of their
approaches to the use of human resources

4. While the Matching model focuses on the strategic resource aspect of human resources the Harvard
model emphasizes the human element in the human resource formulations
• Limitation :
1.Model has been criticized for not explaining the complex relationships between strategic
management and HRM.

2.By outlining a range of policy choices and not recommending specific approaches, this model is
descriptive rather than prescriptive and therefore there is absence of a coherent theoretical basis
for measuring the relationship between HR inputs, outcomes and performance.
 Contextual Model

Outer context
1.Technical
2.Politica l-legal
3. competitive

Inner context
1.Culture
2.Structure
3.Political /leadership
4.Business output

Business strategy context HRM Context

1.Objwctives 1.Role
2.product-market 2.Definition
3.Organization
3.Strategy and tactics
4.HR outputs

HRM Context
1.HR flows
2.Work systems
• Organizations may follow a number of different means to achieve same results.

• This is due to existence of linkage between external environment context-Socioeconomic,

technological, political-legal and competitive, and internal organizational context-culture,

structure, leadership, task, technology, and business output.

• The linkage will determine content of organization‘s HRM.

The frame work is defined by two components ,the external context (socio-economic,

technological, political –legal and competitive) and internal organizational context (culture,

structure, leadership and business output.

• The interconnection and interdependency between those two context defines content of an
organization’s HRM.

Contextual model of HRM integrated in an Internal frame work defined by a certain

organizational climate and culture and also firm size and structure, its productive technology
,orientation to innovation and drivers the interest of different stakeholders involved.

On other hand External framework described by the variables such as legislative,

government policies, political and institutional context ,socio-economic, cultural factors condition
of labour market and the education and university system
• Limitation:

1.The issues of lagged response, emergent business strategy and limited

resource can also complicate the relationship of HR practices and contextual
factors.

2.A potential problem that can arise from this approach is that personnel
policy and practice the dependent variable of the analysis and outcome such as
company performance become the independent variable .besides, different
views and interests of management and employees can influence the
interactive process.
 5-p Model

HR Philosophy
Expressed in statement defining business values and culture
HR Policies
Express as shared values
HR Programmmes
Articulated as HR strategies

HR Practices
For leadership, managerial and operational roles

HR Processes
For the formulation and implementation of other activities
Links five human resource activities-philosophies, policies, programmes, practices, and processes
with strategic needs.
• These activities are Interrelated They are significant in achieving organization‘s needs.

1.Philosophy-Statements of how organization values and treats employees; essentially culture of the organization.

2. Policies -Expressions of shared values and guidelines for action on employee-related  business issues .

3. Programs –Coordinated and strategized approaches to initiate, disseminate, and sustain strategic organizational

change efforts necessitated by strategic business need.

4. Practices  –  HR practices motivate behaviors that allow individuals to assume roles consistent with organization‘s

strategic objectives. (leadership ,managerial, operational)

5. Processes -Continuum of participation by all employees in specific activities to facilitate formulation and

implementation of other activities .

 European Model

• It is based on the argument that European organizations are constrained at both

international (European Union) and national level by national culture and
legislation.

• They are also constrained at the organizational level by patterns of ownership and
at the HRM level by trade union involvement and consultative arrangements.

• All the constraints need to be considered for forming a HR system.

• European models shows an interaction between HR strategies, business
strategy ,and HRM practice and their interaction with an external
environment constituting national culture, power system ,legislation
,education and employee representation.

which means HR strategies are closely related to organizational strategy

and external environment.

Limitation of European model: within Europe, larger difference exist between

countries with more labour regulations.

 Challenges of IHRM
1. Cultural diversity
2. Complexity of workforce
3. Managing the change

4. Legal and industrial relations issues

5. Managing HR Perception across the countries
6. Communication channel management

7. Different economic system management

 Models of SHRM in Multinational
Companies
Strategic management refers to process of formulating, implementing and evaluating
business strategies to achieve organizational objectives

SHRM=Strategic + human resource management

Strategic human resource management includes typical human resource

components such as hiring, discipline, and payroll, and also involves working with
employees in a collaborative manner to boost retention, improve the quality of the
work experience, and maximize the mutual benefit of employment for both the
employee ...
 SIHRM.

• Globalization is becoming more and more important to

companies all over the world. A major component of the
globalization of business is the field of human resource
management.

• A trend over the past few years has been to identify the
linkage of human resource management with strategy not only
on the national level but also on the international level.
 Types of strategy
1. Corporate level strategy (what type of
business)
2. Business level strategy (how to implement
and compete the choose business)
3. Functional level strategy (departmental level
strategy)
A Model of strategic HRM in multinational enterprises.
DEVELOPED BY SCHULER,DOWLIND AND DE CIERI (1993)

1.These external factors exert direct influence on internal organizational factors ,HRM
strategy and practices and multinational concerns and goals.

2.The internal organizational factor are shown in order of most tangible to intangible .

3.The model suggest reciprocal relations between organizational factors, strategic

HRM and multinational concern and goals.

4.With regard to HR strategy and practices, reciprocal relationships between strategic

issues and HRM strategy and practices have been highlighted by research taking a
resource-based perspective.

A more strategic approach to HRM is expected to assist the firm in

achieving its goals and objectives.
 Evolution of MNE

Export Foreign production Multinational stage

sales stage Rule of thumb
Assembly Licensing Motives for direct
operation Direct investment foreign investment
 Business strategies
A business strategy is the means by which it sets out to achieve its
desired ends (objectives). It can simply be described as a long-term
business planning. Typically a business strategy will cover a period of
about 3-5 years (sometimes even longer).
 Types:
1.) Growth Strategy
2.) Product Differentiation Strategy
3.) Acquisition Strategy
 IHRM Strategies

1.Transnational -Geographical context within which all

major decision are made .

2.Transnational representation -Multinational composition of

the managers and executives .
3.Transnational process -Firm‘s ability to include
representatives and ideas from many countries.
Barriers in effective global HRM

5.variatio 6.Percepti
ns factors 1.Political on of HR
2.Econom
& Legal
ic factors
Factors

4.Labor/
Management
3.Cultural
Relations
factors Factor
1. Political & Legal Factors:

 Throughout the world, the political & legal systems are diversified. The organizations deal with the political & legal
systems that are fairly stable, particularly in the developed countries of Europe. On the other hand, in certain other
countries, there are relatively unstable political & legal systems. The governments of certain countries face coups,
corruption & dictatorial rules that are all badly affecting the legal & business environment. Due to internal politics,
the legal systems in certain countries are also becoming unstable. In this way the variations in the political & legal
systems around the world become as a hurdle in the effective global human resource management.

2. Cultural factors:
 Every country has its own unique culture which is slightly similar to the cultures of other countries of the world. The
global human resource management should apply such policies &  procedure in the organization which are in
accordance with the local culture of the country or region. Even most of the employees of the foreign subsidiary
should be hired from the host country. There may be certain cultural norms that are allowed in one country but are
prohibited in another country. So, cultural factor becomes a barrier for the smooth working of the global human
resource management of any organization. Therefore the expatriates of the organization should also take into
account the cultural norms & values of the host country to some extent. The management should make ensure that
the implemented wider corporate culture is being followed in all the subsidiaries of the globally operating
organization.
3.Economic Factors:

 The economic factor is also regarded as a barrier for the effective global human resource management

because there is not any single economic system operating globally. In case of the capitalist system, the

efficiency & productivity are focused by the management of the organization by making such policies &

procedures that promote efficiency. On the other system of economics, which is the socialist, the

elimination of unemployment is concentrated by the management of the organization by sacrificing the

productivity & efficiency which is definitely harmful for the organization. So before development &

implementation of any human resource  policy or practice of the management of the organization, the

economic barrier of the global operations should be properly comprehended by the organization. Moreover,

the difference in the labor costs around the world becomes a serious problem for a global business

4. Labor/Management Relations Factor:

 The policies & procedures of the global human resource management are affected by the relations of workers

& employees with the management because the nature of these relations varies from one country to another

country of the world

5.variation: the biggest challenges is also the most obvious. The worldwide variations in social
,political and economic circumstances. the HR practice that works in one country may be
unacceptable in another. Fluctuations in currency, government regulation, compensation
expectations ,job security and learning style are few example

6.Percetion of HR :in one country HR may be perceived as true business partner, working with
high-level managers on critical strategic assessments .in another country or within same
country HR may be viewed as a transactional personnel department that handles
administrative work
SOCIO-CULTURAL CONTEXT :
• Social environment of business means all factors which affects business socially . Every
business works in a society , so societies different factors like family , educational institutions
and religion affects business . It includes the culture that the individual was educated or lives
in, and the people with whom they interact.

------- Society is nothing but an organized group of people who live together and
are connected with one another. Society is the bigger, cooperating social group with an
organized sense of relationship

• The cultural factors like buying and consumption habit of the people, customs and traditions,
tastes and preferences, languages etc. are the factors that affect the strategy of the business

---------Culture has certain values, custom, beliefs and social behavior. its a part of society.
• Socio-cultural environment :A setoff beliefs, customs, practices
and behavior that exists within population. International companies
often include an examination of the socio-cultural environment
prior to entering their target markets.

• Culture is a strong part of people's lives. It influences their views,

their values, their humor, their hopes, their loyalties, and their
worries and fears. So when you are working with people and
building relationships with them, it helps to have some perspective
and understanding of their cultures
• There is now plenty of research evidence that different nationalities do have different values
and that these affect the way people organize, conduct and manage work.

• The normal HR activities such as recruitment and selection, training and development, reward
and performance appraisal, may all be affected by cultural values and practices in the
respective host countries

Social-Cultural Context designates a group of contextual variables with influence in the

performance and in the activity and reflects society’s values, customs and traditions and
influences the exchanges and the work systems.
Factors which effect social and cultural environment :

1. Attitude of people. 7. Social Responsibility.

2. Technological Factor. 8. Taste & Preference. ,

3. Demographic Factor. 9. Education AND FAMILY

4. Income & Life Style.
5. Religion
Organizational dynamics and IHRM: Role of culture
in International HRM

multicultural teams operate in a global context, with

people from different nationalities working together to
accomplish a global mission, ―comparisons between two
national cultures can be meaningless.
• HR departments of multinational organizations invest a lot of resources
and effort into selecting and training expatriates, and most concentrate on
knowledge training and behavior modification training relevant for specific
cultures, according to the report. They are guided by a cross-cultural
perspective that ―emphasizes differences and similarities of values and
behaviors among countries

• However, because multicultural teams operate in a global context, with

people from different nationalities working together to accomplish a global
mission, ―comparisons between two national cultures can be meaningless.
Impact Of The Cultural Context On HRM Practices

Chapter 2
 Country and Regional Cultures
• Definition of society
similarity among people a cause -- and effect – of national
boundaries Way to bound and measure culture for conduct of
business.
• culture is a key characteristic of society.
• can differ significantly across national borders also within
national borders.
• laws are established along national lines
• Culture is both a cause and an effect of economic and political
factors that vary across national borders
Country Culture versus MNE Culture
1.Dimensions
• When establishing an office overseas, consider cultural differences across
four dimensions: individualism/collectivism, uncertainty/avoidance,
masculinity/femininity and power distance, according to a paper on the
Association to Advance College Schools of Business web site

2.Family Ties
• Cultures also differ in their views of family and business. In the United
States, a manager who hired her brother might well be accused of unethical
nepotism. However, many Latin American cultures consider skipping over
qualified relatives to hire a stranger to be silly.
3.Training
• Small multinational businesses must change the culture in their own U.S.-based
headquarters to be nimble enough to compete cross-culturally. One way is to
adopt a training culture. Training could include presentations on cultural
differences, as well as incentives to encourage employees to travel to countries
where you have offices.

4.Unified Culture:
• Multinational companies also must strike the balance between honoring
all cultures while still ensuring employees from all offices are united toward a
common mission. One way to do this is to create a community culture across all
offices. Online collaboration tools or social media
• groups also can link employees from all cultures to common mission.
Culture and employee management issues / impact of
country culture on IHRM
• Managing the expatriate‘s adjustment process is a primary
focus of IHRM
• The difficulty of this task has increased because sales and
production shifted closer to markets.
• There is higher use of host country and third country
management.
• There is a concurrent increase in the number of inputs
• Both inputs and exports can have a difficult time adapting to
their new surroundings
• Selection , recruitment and training.
• Job expectations and motivations policies.