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Chapter 1

Introduction to International HRM

IHRM
Welingkar Hybrid Program
Chapter Objectives
By the end of this chapter, you will understand:

What is International HRM?

How is the current IHRM scenario?


Chapter Structure
1. What is International HRM?

2. Three Components of IHRM

3. The current IHRM scenario

4. Summary
1. What is International HRM?
About IHRM

IHRM is a branch of management studies that investigates the design and


effects of organizational human resource practices in cross-cultural contexts.

The field has evolved from its fragmented beginnings and organizational
behaviour scholarships.

Laurent (1986) defined international human resource management as being a


discipline in its infancy.

International personnel questions have since then become a new professional


sub-specialism for the human resource people.

The discovery of the international people management problems has helped


HR to re-gain some authority in management expertise.
About IHRM

IHRM is an art which helps you to manage different people holding


different cultures.

Before we understand IHRM, we need to understand HRM.

HRM means Human Resource Management which in simple words means


managing the people within an organization.

Any or many decisions made by the management and the practices


followed which directly affects the employee of a company is known as
Human Resource Management.
IHRM can be defined as...

The process of
Acquiring
Designing, and
Effectively using the human resources
In a multinational company or organization, while trying and maintaining
The balance of integration and differentiation of HR activities in the foreign
location
Evolution of IHRM

For over 30 years the question has been asked: To what extent and in what
ways are MNCs and their managers becoming truly international?

For over 20 years, much of the literature on IHRM has focused on the issue of
expatriation.

Expatriates are sent out around the world like corporate missionaries to
provide technical and managerial expertise, to control operations, and to
further develop these managers as well as their companies.

Problems of expatriation adjustment have also been the key concern. Now
issues of repatriation have taken the foreground.

Indeed, the traditional career paths pursued by expatriates have evolved over
time. In its place, the concept of boundary-less careers has emerged.
Evolution of IHRM

Research conducted in Europe, by Geert Hofstede in the 1960s and 1970s,


challenged the extent to which American theories could be applied abroad.

Different models of HRM have been identied : the American model that
tends to be more transactional and the European model which is more social
and more constrained by the institutional context.

The success of Japanese companies in the early 1980s shook up the


complacency of North American managers and researchers and spurred an
interest in the Japanese model of HRM practice (Hatvany & Puckik, 1982;
Tung, 1984).

The debate then centered upon issues of transferability of management


practice and particularly HRM practice.
Evolution of IHRM

Could Japanese management practices, for example quality circles, work in the
U.S.A.? Why did practices developed by Deming (an American) work better in
Japan than in the U.S.? Was it because of some unique aspects of Japanese
culture?

Peters and Waterman (1984) entered the debate by arguing that good
management principles and practices are universal, and as such, these could
also be found in excellent U.S. companies.

The secret to success was apparently a strong corporate culture. This


inuences best practices. Since then, the debate has focused on best
practices versus cultural contingencies.

IHRM studies varies from understanding management of expatriates,


importance of the changing nature of expatriates, the role of HR function in
managing expatriates, reasons for few women managers in the international
field, importance of retaining expatriates and the problems associated with it.
Chapter Structure
1. What is International HRM?

2. Three Components of IHRM

3. The current IHRM scenario

4. Summary
2. Three components of IHRM
Components of IHRM

The subject matter of IHRM is covered under three headings:

Cross-cultural management

Comparative HRM

IHRM
Components of IHRM
Cross Cultural Management

Nations differ in their values, cultures and attitudes.

We all believe in some or the other sort of stereotypes even though it may
not be true. Beliefs such as these are common: All Asians are good at Math, All
Irish people drink alcohol, All Americans are domineering, All Italians are good
lovers! However, the same may not be true. We might meet a non alcoholic
Irishman or even a passive American!

At the same time, plenty of research has found that since different nations
have different values, there is a difference in how their organizational
behaviour is.

It is, therefore, essential that an International HR manager is aware of such


differences.

This is because all HR activities like recruitment, appraisals, performance and


rewards are affected by the cultural orientation of an employee. As an
International HR manager, while taking policy or process decisions, it is
essential that one keeps in mind the cultural aspect.
Components of IHRM
Comparative HRM
Comparative HRM (CHRM) explores the extent to which HRM differs between
different countries or even sometimes between different regions of a
country.

We know that they may have different labour markets and education systems,
different employment laws and trade unions, and the different cultural
expectations that we have already noted.

It should be no surprise, therefore, to find that employment systems differ


noticeably between countries and that managing human resources has to vary
from country to country.

The CHRM field concentrates on aspects like differences in HR policies across


nations influenced by their culture, government policy and education system.
Or how is HRM structured in a particular country. Difference in management
practices across nations is also a matter of discussion in CHRM.
Components of IHRM
International HRM
IHRM has traditionally examined the way in which international organisations
manage their human resources across these different national contexts.

IHRM practitioners have to be aware of what is allowed in different nations


and regions of the world and also what makes cost effective management
practices.

This area is also concerned about ensuring how a company manages its people
in a cost effective way across countries while being sensitive to individual
country differences as well.

IHRM has the same dimensions as HRM in a national context, but it operates
on a larger scale, more complex scenarios and coordination.

IHRM has its own issues and pressures, those of more personal insight into the
employees life and family situations and a greater need for diversity
management.
Quick Check

Choose the correct option:

1. International HRM investigates:


A. All types of HR practices
B. HR practices in cross cultural context
C. HR practices in context of a single organization

2. An international HR manager needs:


A. To ignore differences in values and beliefs across nations
B. To be aware of differences in dressing and style across nations
C. To be aware of differences in values and beliefs across nations

Answers:
1. B 2. C
Chapter Structure
1. What is International HRM?

2. Three Components of IHRM

3. The current IHRM scenario

4. Summary
3. The current IHRM Scenario
Current IHRM Scenario
MNEs today

Consequences of global business process redesign, the pursuit of a global


centre of excellence strategy and the global re-distribution and re-location
of work

Absorption of acquired businesses, merging of existing operations on a


global scale, the staffing of strategic integration teams, and attempts to
develop and harmonise core HR processes within these merged
businesses

Rapid start-up of international operations and organisation development


as they mature through different stages of the business life cycle

Changing capabilities of international operations with increased needs for


up-skilling of local operations and greater complexity
Current IHRM Scenario
MNEs today

Need to capitalise on the potential that technology affords the delivery of HR


through shared services, on a global basis, whilst ensuring that local social and
cultural insights are duly considered when it is imperative to do so

Changes being wrought in the HR service supply chain as the need for several
intermediary service providers is being reduced, and as web-based HR
provision increases

Articulation of appropriate pledges about the levels of performance that can


be delivered to the business by the IHR function, and the requirement to meet
these pledges under conditions of cost control

Learning about operating through formal or informal global HR networks,


acting as knowledge brokers across international operations, and avoiding a
one best way HR philosophy
Current IHRM Scenario
MNEs today

Offering a compelling value proposition to the employees of the firm, and


understanding and then marketing the brand that the firm represents across
global labour markets that in practice have different values and different
perceptions

Identity problems faced by HR professionals as they experience changes in the


level of decentralisation/ centralisation across constituent international
businesses.

As knowledge and ideas about best practice flow from both the centre to the
operations and vice versa, it is not uncommon for HR professionals at all levels
of the firm to feel that their ideas are being overridden by those of other
nationalities or business systems.

In pursuing these developments, International HR directors are having to cope


with four underlying challenges: managing the shift from international human
resource management (IHRM) to global HRM; enabling capability
development on a global basis; ensuring effective knowledge management;
and providing HR services cost-effectively
International HRM to Global HRM

IHRM is characterised by a continual tension between the requirement to


standardise HRM across international operations but also to be sensitive
to local circumstances and to allow several differentiated responses.

The debate now is not just about the difference between standardised and
localised HR practices, but between optimised, standardised or localised
practices, with there being considerable debate about the nature and
meaning of standardised versus optimised HR processes.

Optimising a process assumes that by comparing best practice,


organisations can find the most effective elements of a process and can
then pick and mix these elements into a single, highly effective model.
International HRM to Global HRM

Standardising a process may still be guided by assumptions of best


practice, but usually one complete (deemed the best) model might be
adopted (often that practiced in the home country!) and then other
operations adapted to this single best way.

In order to handle this complexity, global HR networks have replaced many


traditional structures to become the major organisational form for
executing IHRM.

Traditionally, IHRM has concerned managing an international workforce


the expatriates, frequent commuters, cross-cultural team members and
specialists involved in international knowledge transfer.

Global HRM is not simply about covering these staff around the world. It
concerns managing IHRM activities through the application of global rule-
sets.
The Changing IHRM Scenario
International Shared Services
By the end of the 1980s most multinational organisations had decided that
splitting up the HR function on a country-by-country basis when the rest of the
organisation was increasingly aligned behind global lines of business was not
helping the function to achieve its objectives.

However, concerns about diversity in employment law and the continuance of


strong national influences on the employment relationship meant that total
alignment of the HR function with other business processes remained
problematic.

As a compromise, many organisations installed global HR directors as an extra


layer in the reporting structure in order to create a position that acted as a
strategic business partner.

However, the result was often confusing as HR functions attempted to


interweave their day-to-day administration work with the more strategic
activities open to them.
The Changing IHRM Scenario
International Shared Services

The advent of shared service thinking in the late 1990s provided the
opportunity to transform HR structures.

There does not appear to be a common path to the internationalisation of


shared service models.

Many organisations have chosen to create regional centres as part of a


single international organisation structure.

Another arrangement has been to use service centres to support global


business streams rather than organise them at a regional level on a
geographical basis.
The Changing IHRM Scenario
e-Enabled HRM

e-Enabled HRM (sometimes also called web-enabled) is another


significant and developing trend in international organisations that also
has extensive resourcing implications for IHR functions.

In its own right it will undoubtedly have a considerable impact on the role
and activities of IHR departments, centrally and locally.

The ability to get HRM information to and from, and support on to, line
managers and even employees - desks without a formal HRM
intervention opens up new and exciting possibilities allowing HR to focus
on its capability and business development roles.
The Changing IHRM Scenario
Outsourcing, Insourcing & Offshoring

The issue of outsourcing transactional aspects of HRM has been a source


of considerable debate in recent years.

Advocates for the outsourcing of HR activities point to reduced costs,


increased service quality produced by greater economies of scale,
increased incentives and accountability for service providers, and
increased access to experts in specialised areas.

The most common targets for outsourcing are those HR activities that can
most easily be ring-fenced, and include: payroll, training, recruitment.

The arguments marshalled against outsourcing tend to emphasise


exposure to opportunistic behaviour by contractors, limits to the ability of
the firm to develop distinctive competencies within its workforce, and
inefficiencies because of a lack of contractor insight into the clients
strategy and culture.
The Changing IHRM Scenario
Outsourcing, Insourcing & Offshoring

Offshoring is the process of sourcing business services from overseas.

Offshoring is not outsourcing per se, but rather concerns the completion of
the same task in a different location where the costs are significantly cheaper.

Pyndt and Pedersen (2006) found that the direct benefits of offshoring are
easy to understand and are derived from savings in labour costs, foreign
suppliers import of products or services and repatriation of profits.

The indirect benefits of offshoring include the value of re-employing the


employees in the home country affected by the offshoring. Capital savings can
be reinvested in higher value jobs.

Achieving these benefits is dependent upon the home countrys ability to


train, upgrade and re-employ the home workers.
Quick Check
Choose the correct option:

1. Optimizing an HR practice means:


A. Adopting the same HR practice across all locations (usually the one
practiced at the home country)
B. Adopting different HR practices across all locations
C. Adopting a mix of best practices that seems to be the most effective
model

2. Outsourcing in IHRM is generally looked down upon due to:


A. Lack of contractor insight into clients strategy and culture
B. Unavailability of appropriate contractors in certain locations
C. Fear of not having standard HR practices in all locations

Answers:
1. C 2. A
Chapter Structure
1. What is International HRM?

2. Three Components of IHRM

3. The current IHRM scenario

4. Summary
4. Chapter Summary
International Human Resource Management (IHRM) is a branch of
management studies that investigates the design and effects of organizational
human resource practices in cross-cultural contexts.

Once we have understood HRM we can easily understand IHRM. HRM means
Human Resource Management which in simple words means managing the
people within an organization. Any or many all decisions made by the
management and the practices followed which directly affects the employee
of a company is known as Human Resource Management.

IHRM is the process of acquiring, designating and effectively using human


resources in multinational organizations.

IHRM is studied under three basic areas cross cultural management,


comparative HRM and IHRM.
The Cross Cultural Management believers say that every nation has its own
unique sets of deep-lying values and beliefs, and that these are reflected in
the ways that societies operate, and in the ways that the economy operates
and people work and are managed at work.

Comparative HRM focuses on the way that people work and explores the
differences between nations in the way that they manage this process.

International Human Resource Management (IHRM) examines the way


organisations manage their human resources across these different national
contexts.

The added value of the HR function in an international firm lies in its ability to
manage the delicate balance between overall co-ordinated systems and
sensitivity to local needs, including cultural differences, in a way that aligns
with both business needs and senior management philosophy.