International Human Resource Management | Management Optional Notes for UPSC PDF Download

Introduction

• When human resource management adopts a global perspective, it transforms into international human resource management. Various factors, such as emerging technologies and new markets, are instigating changes in different facets of organizations. However, the recent surge in globalization has significantly propelled the importance of international human resource management, as an increasing number of companies recognize that their future success and growth hinge on the internationalization of their operations.
• In today's global village, organizations extend beyond national boundaries in their business operations. The liberalization process in India has created substantial opportunities for foreign companies to enter the Indian market, while Indian companies have seized the chance to expand their presence beyond the country. Many Indian multinationals are demonstrating exceptional performance on the international stage.
• The impact of business globalization on the HR manager is profound, surpassing that of other functional heads. HR executives now need to imbue an international orientation into various aspects of their work, including employee recruitment, training and development, performance evaluation, compensation, motivation, welfare, and industrial relations. This international orientation becomes increasingly relevant as businesses become more interconnected across nations.
• Similar to how the success of a domestic business relies on its human resources, the same holds true for international businesses. The caliber of individuals, their willingness to work, and their commitment to the organization play a pivotal role in determining the competitive advantage of a multinational corporation in the international market. While an international firm may possess excellent resources at its headquarters, these resources cannot be effectively utilized or transferred to foreign affiliates without harnessing the power of human resources.

Meaning and Definition

• International Human Resource Management (IHRM) involves the intricate interplay of three critical dimensions within human resource management: types of employees, human resource activities, and the country of operation. The complexity of operating in diverse countries and employing various national categories of workers is what fundamentally distinguishes domestic from international HRM.
• IHRM in an international business encompasses the processes of acquiring, motivating, retaining, and effectively utilizing the services of individuals, both at the corporate office and foreign plants. This entire process is collectively referred to as International Human Resource Management (IHRM).
• In essence, IHRM is the systematic acquisition, development, allocation, and utilization of human resources in a global corporation to achieve organizational objectives, transcending geographical boundaries.
  In the realm of global firms, human resource managers face the challenge of concurrently achieving two somewhat conflicting strategic objectives:
  • They must harmonize human resource policies and practices across multiple subsidiaries in different countries to align with overall corporate objectives.
  • The approach to HRM must exhibit sufficient flexibility to accommodate significant variations in business conditions and culture across different regions.

Definition

• According to P.V. Morgan, International Human Resource Management (IHRM) is the dynamic interaction among three dimensions – human resource activities, types of employees, and countries of operations.
• According to Nancy Wong, International Human Resource Management involves the execution of activities on a global scale, including candidate recruitment and selection, assignment terms and documentation, relocation processing and vendor management, immigration processing, cultural and language orientation and training, compensation administration and payroll processing, tax administration, career planning and development, and handling spouse and dependent matters.
• According to Michael Armstrong, International Human Resource Management is the systematic process of employing and developing individuals in international organizations that operate globally. It involves working across national boundaries to formulate and implement resourcing, development, career management, and remuneration strategies, policies, and practices applicable to an international workforce.

Features of International Human Resource Management (IHRM)

• Global Talent Deployment: IHRM involves the strategic deployment of personnel to the right positions globally, emphasizing competence over geographical location.
• Long-term HR Planning: It necessitates the development of a comprehensive and long-term HR plan to align HR strategies effectively with corporate objectives.
• Skill Diversification: IHRM requires cultivating a diverse range of skills among employees, particularly for those who work beyond national boundaries.
• Compensation Determination: Compensation for employees from host, home, and third countries is determined based on country-specific factors.
• Centralized Reporting Relationships: Creation of centralized reporting relationships worldwide is essential for swift information sharing.
• Integration Methods: IHRM calls for the introduction of both formal and informal methods to integrate different parts of the global business effectively.
• Performance Evaluation System: A well-organized evaluation system is necessary to assess the performance of employees across various locations and nations.
• Cultural Understanding: It is crucial to understand the cultural dimensions of host nations as they significantly influence HR operations.
• Effective Communication: Maintaining effective communication across all parts and people of the organization at the global level is essential.
• Variation in HR Activity Value: The perceived value of HR activities may vary across different locations within international companies.

Reasons for the growth of International Human Resource Management (IHRM)

• Globalization: The rise of globalization has led to the growth of multinational companies and international business operations, fostering the global mobility of human resources.
• Shortage of International Talent: A growing scarcity of human resources with international exposure and experience has compelled companies to enhance their global preparedness in human resource management.
• Critical Role of Expatriates: The success of international operations is often linked to the performance of expatriates and other employees in foreign countries, prompting organizations to emphasize the significance of IHRM activities.
• Risk Mitigation: Due to the potential costliness of failures in international operations, companies take precautionary measures, leading to the establishment of dedicated international HR departments focused on training and compensating human resources.
• Complexity in Cross-border Operations: Variations in people, processes, tax computation, organizational structure, and culture among nations compel companies to engage in complex HR activities such as tax planning, orientation, training, and compensation fixation.

 Need / Characteristics of International Human Resource Management (IHRM)

• Broader Perspective Requirement: In a domestic environment, HR managers operate within a single government scenario, managing employees of the host country. In a multinational context, HR managers must adopt a broader view, considering international issues such as expatriates' benefits and cross-cultural work dynamics in people management.
• Increased Personal Involvement: There is a heightened need for personal involvement in employees' personal lives, especially in the selection, training, placement, and effective management of Parent Country Nationals (PCNs) and Third Country Nationals (TCNs). HR departments play a crucial role in ensuring expatriate employees understand various aspects such as housing, healthcare, work culture, and compensation, facilitating their comfort in new environments.
• Emphasis Variation with Workforce Mix: The emphasis on various human resource activities changes as the mix of expatriates and locals in the workplace varies. With the growing experience of international operations, companies adapt their focus on HR activities accordingly.
• Risk Exposure Sensitivity: The consequences of failure in international operations are more severe than in domestic business. Failure or premature return of an expatriate can significantly impact the company, affecting market share and international customer relationships, and incurring substantial costs.
• Increased External Influences: External factors such as different government types, economic conditions, and business policies and practices in host countries exert a significant influence. Managing HR in the face of diverse external influences poses a considerable challenge for HR professionals, and the HR policies of multinational corporations may vary based on the host country's attitude towards international firms.

Complexities / Challenges of International Human Resource Management (IHRM)

• Need for Broader Perspective: In the international business landscape, HR managers must adopt a broader view to navigate various international issues such as expatriate benefits and the cross-cultural dynamics involved in managing people.
• Ethical and Corporate Social Responsibility (CSR): Ethical considerations and corporate social responsibility in the international business environment are subjects of ongoing debate. Multinational corporations (MNCs) are often accused of prioritizing profitability over the issues faced by host countries. Balancing ethics and morals from the home country and the host country is a critical challenge.
  • Ethical Relativist: This perspective believes there is no universal right or wrong. What may be considered right in one situation or place may not hold true in another, providing flexibility but risking potential disasters.
  • Ethical Absolutist: MNCs following this approach are strongly influenced by the practices of their home country, giving less importance to the culture and values of the host country. Criticized for arrogance and a lack of respect for host country traditions.
  • Ethical Universalist: This perspective believes in fundamental rules differentiating between right and wrong, applicable in any country and situation. Cultural variations are recognized, but there is a distinction between culturally different practices and morally wrong ones.
• Bribery: Developed countries reportedly provide around $85 billion in bribes to underdeveloped countries. MNCs from developed countries have faced accusations of bribing government officials, necessitating the establishment of laws to prevent corruption.
• Code of Conduct for International Business: Initiatives such as the "Caux Roundtable Conference" on "Principles for Business Conduct" aim to address the need for a code of conduct in international business. The focus is on promoting free trade, environmental and cultural integrity, and preventing bribery and corruption through the formulation of ethical rules and codes.

Stages of International Human Resource Management (IHRM)

From an organizational perspective, the international human resource development and usage process typically undergoes four stages:

1. Transfer: The first stage involves the transfer of an executive or executives from the home country to fill key positions in foreign operations.
2. Mixed Resources: In the second stage, due to pressures from foreign governments or the availability of suitably trained local personnel, most jobs in foreign operations are held by local personnel.
3. Unitary Resources: At this stage in the evolution process, the entire operation is staffed by foreign nationals, including top management positions. Alternatively, the organization's operations may have matured to the point where foreign nationals at all levels have been trained to handle all jobs effectively.
4. Interchange: In the final stage, there is a recognition that a manager's skill and competence, rather than their passport, should be the basis for advancement, privileges, and rewards. This stage emphasizes not only the opportunity for home country managers to obtain international assignments but also for foreign managers within the organization to receive assignments at the home office.

Model of International Human Resource Management (IHRM)

P.V. Morgan has presented a model highlighting the broad functions of international human resource management, which comprises three dimensions:

• Human Resource Activity: Encompasses procurement, allocation, and utilization of human resources.
• Country of Operation: Involves the host country where a subsidiary may be located, the home country where the firm's headquarters are situated, and a third country that may serve as the source of labor, finance, etc.
• Types of Employees of an International Firm: Includes host country nationals, parent country nationals, and third country nationals.

This model signifies that international human resource management is the interplay between three dimensions: human resource activities, the country of operation, and the types of employees. The complexities arise from the differences and challenges involved in operating in various countries and managing a workforce comprising individuals from different nations, distinguishing it from domestic HRM.

Functions of International Human Resource Management (IHRM)

1. Recruitment and Selection
2. Performance Management
3. Compensation
4. Repatriation

International Recruitment: Approaches to Multinational Staffing Decisions

An international firm's response to recruitment and selection on a global scale is influenced by its staffing policy, the ability to attract suitable candidates, and constraints imposed by host governments.
There are four major approaches to multinational staffing decisions:

1. Ethnocentric Approach:

• Parent nation employees fill all key positions in the multinational.
• Business reasons for this approach include a perceived lack of qualified host nation employees and the need for effective communication, coordination, and control with corporate headquarters.
• Disadvantages include limited promotion opportunities for host country nationals, potential decline in productivity, and high labor turnover.

2. Polycentric Approach:

• Host country nationals are employed in the subsidiary, while parent country nationals hold positions in the corporate headquarters.
• Advantages include no language barriers, easier management of local politics and administration, and cost-effectiveness.
• Disadvantages include challenges in maintaining understanding between corporate and subsidiary management, difficulty in preserving the original company culture, and limited growth opportunities for host country employees.

3. Geocentric Approach:

• The view of employing the best people in key positions throughout the organization without nationality constraints.
• Addresses disadvantages of both ethnocentric and polycentric approaches.
• Drawbacks include constraints in terms of employment policies in specific countries, paperwork for hiring foreign nationals, obtaining work permits for dependents, high training and development costs, and benchmarking salary with international compensation packages.

4. Regiocentric Approach:

• Division of operations based on geographical regions, allowing employee transfers within a region.
• Advantages include interaction between executives from subsidiaries and parent country nationals, sensitivity to local conditions, and effectiveness in transitioning from ethnocentric to geocentric approaches.
• Disadvantages include potential development of regional "federalism" and barriers at the regional level.

 International Selection: Expatriate Selection Criteria

• International Human Resource Management (IHRM) involves the critical function of selecting individuals for international assignments, particularly expatriates. Expatriate selection is a complex process due to the challenges associated with predicting future performance in a foreign environment. The concept of "expatriate failure," referring to the premature return of an expatriate from an international assignment, underscores the importance of effective selection and preparation.

Expatriate Selection:

• Expatriate Failure Costs:
  • Direct Costs: Include airfare, relocation expenses, salary, and training costs.
  • Indirect Costs: Harder to quantify but often more expensive for the company.
  • Costs depend on the level of the position, the destination country, and exchange rates.

Criteria for Selection:

1. Technical Ability:

• Judged based on performance, technical skills, and managerial competency.
• Matching competencies with job demands is crucial for successful international assignments.

2. Cross-cultural Suitability:

• Competency alone is not enough; individuals must adapt to a new cultural environment.
• Cross-cultural ability is vital for effectiveness in a foreign assignment.

3. Family Requirements:

• Spouse acceptability and comfort toward foreign assignments are crucial.
• Worldwide dissatisfaction or lack of adjustment by the spouse can lead to expatriate failure.

4. Language:

• Effective communication is key.
• Competency in the host country's language enhances success, especially in senior management positions.

5. Country/Cultural Requirement:

• Multinational companies may have policies regarding the percentage of expatriates from the home country.
• Corporate culture and employment policies influence selection decisions.

Other Situational Factors:

• Negotiated agreements with local partners may constrain expatriate assignments.
• The duration of the assignment influences selection decisions.
• The amount of knowledge transfer inherent in the expatriate's job in the foreign operation is a consideration.

International Performance Management

International performance management poses significant challenges for firms operating in a global environment. Monitoring and ensuring adherence to agreed-upon standards are crucial components of International Human Resource Management (IHRM).

Various Constraints Affecting Goal Attainment:

• Whole as Against Part: Multinational companies prioritize the well-being of the entire organization over the short-term profits of individual subsidiaries.
• Volatility of International Environment: The dynamic and unpredictable nature of the global market emphasizes long-term goal fixation over short-term fluctuations.
• Variable Levels of Maturity: Market development in foreign subsidiaries is slower and more challenging without the established infrastructure of the parent organization.

Factors Associated with Individual Performance and Appraisal in an International Context:

• Compensation Package: Financial benefits and career progression potential associated with international assignments motivate employees.
• Task (Assignment Variables & Role of the Expatriate): Four main expatriate task roles: CEO, Structure Reproducer, Troubleshooter, Operative.
• Headquarter’s Support: International assignments involve relocating the employee and family to a foreign environment, necessitating support from the headquarters.
• Environment in Which Performance Occurs: The international context, with varying legal, economic, societal, technical, and political demands, influences expatriate performance.
• Cultural Adjustment: The expatriate's adjustment to the foreign country's culture is crucial, impacting performance. The cultural adjustment cycle includes phases of excitement, homesickness, adaptation, and healthy recovery.

International Compensation Management

In formulating international compensation policies, a firm aims to achieve several objectives, aligning the policy with the organizational structure and strategy, attracting top talent, enhancing employee satisfaction, and ensuring clarity and ease of administration. Employees, in turn, seek compensation that reflects their competency, ensures financial well-being for themselves and their families, and addresses present and future needs. Major components of an international compensation package include base salary, foreign service inducement premium, and various allowances, such as cost of living allowance (COLA).

Approaches to International Compensation:

1. Market Rate Approach:

• Advantages:
  • Simple to follow.
  • Allows identification with the host country.
  • Ensures equality with local nationals and among people of different countries.
• Disadvantages:
  • Potential variation in compensations for expatriates from the same country in different nations.
  • Issues when repatriating an expatriate to a country with a lower salary structure.
  • Danger of variation between assignments for the same employee.

2. Balance Sheet Approach: This approach maintains relativity to parent country colleagues and compensates for the costs of an international assignment, aiming to prevent tangible losses for employees on foreign assignments. It covers four main expenditure categories: goods and services, housing, income tax, and resources.

• Advantages:
  • Ensures equity between foreign assignments and expatriates of the same nationality.
  • Facilitates the repatriation of expatriates.
• Disadvantages:
  • Complicated to administer and involves high costs.
  • May result in significant disparities between expatriates of different nationalities.

Repatriation

While individuals may initially struggle with acclimatizing to a new culture, they often find it uncomfortable to quit their jobs and return to their home country, facing more psychological frustration than continuing in the new environment. Repatriation is considered the final stage of the expatriation process and involves four related phases:

• Preparation:
  • Develops plans for the future and gathers information about the new position.
  • The organization may provide a checklist for the employee to follow before returning home.
• Physical Relocation:
  • Involves shifting personal belongings and traveling to the next posting, usually the home country.
• Transition:
  • The individual starts the process of settling down in the new setting.
  • This includes settling into a new house, managing children's education, and adjusting socially to new friends and colleagues.
• Readjustment:
  • Involves coping with reverse culture shock and career adjustments.
  • This phase is critical for repatriates in terms of adapting to the new environment.
    

Conclusion

Globalization involves extending business activities to foreign countries, impacting various aspects such as employment, Human Resource Development (HRD), compensation, and labor relations. The model of international Human Resource Management (HRM) includes three variables: HR activities, country of operation, and types of employees. International recruitment can be approached through four methods: ethnocentric, polycentric, geocentric, and regiocentric. Each approach has its advantages and disadvantages, influencing staffing decisions for multinational companies operating in diverse cultural and economic environments.