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Global HR Practices

Need for entering into International Business


The factors which motivate or provoke firms to go international may be broadly divided into two groups,
viz. the PULL factors and the PUSH factors.

PULL factors are factors which attracts or pulls a business into its country, whereas, push factors are
compulsions which force a business to extend its operations beyond the boundary of its country.

1. Increase sales / Growth.

A business can leverage the advantage of a good product by extending the same to other
countries thereby increasing the sales. For example, a software company can extend its
market into France & Germany by adding a French and German language version of its
products.

A number of Indian pharmaceutical companies have achieved a much faster growth of their
foreign business than the domestic. The US market alone contributes as much as half of the
total sales of Ranbaxy.

2. Improve profits.

Businesses move into other countries in order to reduce the cost of production or other
operations. For e.g many of the businesses moved their production units or set-up new
production units in china in order to take advantage of cheap labour and other government
incentives.

In 1995, 6 out of 100 largest US MNCs made more than 100 percent of their profits from outside
the US.

3. Increase innovation.

Extending the customer base internationally can help a business innovate and finance new
product development.

4. Government Incentives

It is common for governments toincentivize their countrys companies to export. This


often results in many companies entering markets they would otherwise not have tackled.

5. Internal market Problems


Domestic demand constraints may drive a company towards expanding the market beyond the
national border. For. E.g. In the US, the stock of several consumer durables like cars, TV etc.
exceed the total number of households ie the market is saturated.

One of the reasons for this could be the fall in birth rates in some countries leading to negligible
growth in the population which adversely affects the demand in the market.

Particularly when the domestic market is limited, internationalization is the only way to achieve
significant growth. For e.g Nestle derives only 2% of its total sales from its home market,
Switzerland. Similarly Philips derives only 8% of its total sales from Holland.

6. Economies of scale:

The technological advances have increased the size of the optimum scale of operation
substantially in many industries making it necessary for them to look for newer markets in other
countries. For e.g for a certain chemical product, the minimum economic size of the plantis
35000 tonnes but the demand for it in India by the end of the century is expected to be less than
10000 tonnes only.

7. Competitive forces:

Liberalization policy pursued by Government has led to the entry of foreign players thereby
increasing the competition for domestic players. Such situation may become a driving force
behind internationalization.

Many companies may also adopt an offensive strategy of counter-competition. The business will
penetrate the home market of the potential foreign competitor so as to diminish its competitive
strength and to protect the domestic market share from foreign penetration.

For e.g IBM moved early into Japanese mainframe computer market thereby forcing its
competitors Fujitsu and Hitachi to spend its resources to protect its ground in Japan. Thus they
lacked sufficient resources needed to invade the US market.

8. Government Policies and Regulations:

Government policies and regulations may also motivate internationalization. There are both
positive and negative factors which could cause internationalization.

It is common for governments to incentivize their countrys companies to export. This


often results in many companies entering markets they would otherwise not have tackled.

Sometimes, as was the case in India, companies may be obliged to earn foreign exchange to
finance their imports.
Some companies also move to foreign countries because of certain regulations like the
environmental laws in advanced countries.

9. Monopoly power:

Monopoly power may arise from such factors as monopolization of certain resources, patent
rights, technological advantage, product differentiation etc. Such monopoly power need not be
an absolute one but even a dominant position may facilitate internalization decision.

10. Spin off (Incidental benefit) of international business:

A company going global may get a spin off too. It may help the company to improve its domestic
business and the image of the company may get a face lift as it runs business on multinational
scale.

The consumers may prefer to buy products from a company which exports its majority of its
products to foreign countries and this factor adds to the good will of the company.

11. Strategic Vision:

Some companies may keep globalisation of its products as part of their business policy or
strategic management.

What is Globalization?
Globalization is a process of interaction and integration among the people, companies, and
governments of different nations, a process driven by international trade and investment and aided by
information technology. This process has effects on the environment, on culture, on political systems,
on economic development and prosperity, and on human physical well-being in societies around the
world.

Globalization is not new, though. For thousands of years, peopleand, later, corporationshave been
buying from and selling to each other in lands at great distances, such as through the famed Silk Road
across Central Asia that connected China and Europe during the Middle Ages.

Policy and technological developments of the past few decades have spurred increases in cross-border
trade, investment, and migration so large that many observers believe the world has entered a
qualitatively new phase in its economic development.

Globalization is deeply controversial, however. Proponents of globalization argue that it allows poor
countries and their citizens to develop economically and raise their standards of living, while opponents
of globalization claim that the creation of an unfettered international free market has benefited
multinational corporations in the Western world at the expense of local enterprises, local cultures, and
common people.

Dimensions of Globalization
Dimensions may be grouped under the following categories:

economic, political, social, technology and cultural.

The Economic Dimension

The economic dimension of globalization refers to an increasing interconnectedness and


interdependence of enterprises through the world market. This interdependence results from
world trade, foreign and joint venture investments, world - wide consumer markets, processes of
concentration etc.

According to neo-liberal thinking, the world market efficiently fulfills its allocation function to guide
flows of goods, services, capital information and labor to that places wherever they are needed.
Consumers benefits from this competitive market by availability of products at low prices.

Interconnectedness of the world is explained in the Technological dimension

The Technological dimension

The technological dimension of globalization refers primarily to the advancements of (a) ICTs which have
fueled the communication and information revolution of recent years; and (b) new production
technologies, which have produced efficiencies in production and created the so-called "post-Fordist"
era of manufacturing. The technological dynamic of globalization includes everything from the internet
and mobile phones, which have done much to create the "interconnectedness" of the world, to
improved logistics systems, which have enabled industries worldwide to function more efficiently and
profitably, to modern agronomic practices, which are restoring infertile lands and opening up new
opportunities in agriculture.

The Political dimension

The political dimension refers primarily to the decline of the sovereign state, which is due in part to the
rise of multinational corporations, but also due to globalization's ties with neoliberalism. Neoliberalism--
promoted by the Reagan and Thatcher governments of the 1980s-- essentially calls for a less
interventionist state in both economic and social arenas, and its adherents, who have been in power at
the World Bank and International Monetary fund for over twenty years, have proposed and imposed: (a)
deregulation and free markets, with less power for the sovereign state to set economic policies, (b)
decentralization of government, shifting power from the sovereign to the more local, and (c) reduction
of the role of the state by increasing the role of the private sector in most areas of economic and social
life.
The Cultural dimension

The cultural dimension of globalization appears at first glance to be a schizophrenic one. On the one
hand, our increasing global interconnectedness has helped to produce a kind of homogenous mass
culture (mostly American and mostly English language). On the other hand, these same dynamics have
led to the mixing of many different cultures and societies, helping to produce a new multiculturalism.
Strangely, both dynamics seem to be happening at the same time. The cultural dimension of
globalization also deals with gender issues, questions of identity, and the social construction of reality,
as well as the production and consumption of media. But while the cultural dimension of globalization is
certainly a significant one, the focus here, since we are concerned primarily with sustainable
development, will be more on the economic, technological and political.

The Social dimension

The social dimension of globalization refers to the impact of globalization on the life and work of people,
on their families, and their societies. Concerns and issues are often raised about the impact of
globalization on employment, working conditions, income and social protection. Beyond the world of
work, the social dimension encompasses security, culture and identity, inclusion or exclusion and the
cohesiveness of families and communities.

Globalization brings new potentials for development and wealth creation. But there are divergent views
and perceptions among people as concerns its economic and social impact, and indeed widely varying
impacts on the interests and opportunities of different sectors and economic and social actors. Some
argue that the present model of globalization has exacerbated problems of unemployment, inequality
and poverty, while others contend that globalization helps to reduce them. Of course, these problems
predated globalization, but it is clear that for globalization to be politically and economically sustainable,
it must contribute to their reduction. Hence the goal of a globalization which meets the needs of all
people.

Forces influencing Globalization


The important forces driving globalization are as follows:

1. Liberalisation: One of the most important factors which have given a great forward thrust to
globalisation since the 1980s is the formation of universal economic policy resulting in liberalisation of
economy in many countries. The immediate result of liberalisation is globalisation of business. Now
many business firms can involve themselves is international trade as the restrictions imposed by various
countries is highly restricted under GATT/WTO.

2. Network of MNCs: The companies which have taken a complete advantage of trade liberalisation
caused under GATT/WTO are MNCs (Multi National Companies). Sony, Philips, Coco Cola, Pepsi,
Procter & Gamble, etc are some famous examples for MNCs. These companies combine their resources
and objectives to achieve profit in global market. According to the world Investment Report 1997, there
were about 44,500 MNCs in the world with nearly 2.77 lakhs foregin collaborations. The MNCs leverage
their strengths to link global resources and opportunities and thereby strengthen the globalization
trend.

3. Technology: Technology in a powerful driving force of Globalisation. Once a Technology is


developed, it soon becomes available every where in the world. (for example) A hospital in the USA
performs the required diagnostics on patients say an X ray or MRI or C.T Scan. These diagnostic tests
represent technology in medical field. In the next three minutes, a radiologists in Bangolore, India
receives the scanned images from USA. He then sends his report to USA. This is called as teleradiology.
The entire process, from the time the patient was admitted, has taken Just 20 minutes. The cost of this
work is 30% lower in India compared to the USA. In short, long distance on line services made possible
by the technological developments have given a forward thrust to globalisation.

4. Transportation and Communication revolutions: Technological revolution in several spheres, like


transport and Communication, has given a great impetus to globalisation. The Microprocessor in
computers has created the flow of information from one part of the globe to another not only fast but
also cost effective. It has played a pivotal role in reducing space and time. It has made world in to a
global village. Microprocessors coupled with satellite, optical fibre, wireless technologies, world wide
web have made this World in to a global village. The consumers/ customers has become more global.
By sitting in front of the computer and logging on to world wide web the consumer can download any
type of information from any part of the world. Flow of information is business. It determines profit.
Hence technology is a strong driving force for Globalisation.

5. Product development and efforts: The immediate impact of increase of Technology is the growth
of new products due to innovation. The fast technology hastens product obsolescence. This has made
many firms to invest heavily on R&D activities with cross border alliances . These companies have to
stay in business and survive competition. In order to achieve this, many companies have crossed their
borders and have tie ups to update their products through research and development with foreign
companies. This causes globalisation.

6. Rising aspirations and wants: Because of the increasing levels of education and exposure to the
media, aspirations of people around the world are rising. They aspire for everything that can make life
more comfortable and satisfying. If domestic firms are not able to meet the wants, they would naturally
turn to the foreign firms to satisfy their aspirations. This promotes Globalisation.

7. World economic trends: The world economic conditions are changing fast. There, is a great
difference in the growth rates of economies/ markets between developing nations and developed
nations. In developed nations the economies have become stagnant, due to saturation on the
otherhand, the developing nations are experiencing tremendous growth rate in various business sector.
Cheap labour, high investment in research and development, improvements in technology are some of
the factors which have driven the developing nations towards achieving high growth rate in business.
Hence it is very common for the developing nations to have a strong international trade links with
developed nations. Thus difference in world economies between nation causes gobalisation.
8. Regional Integration: Nowadays many countries are joining hands together to promote free and fair
international trade across the borders. They are forming separate trade blocks. European Union and
North American Free Trade Agreements are two such classical examples. This promotes globalisation.

9. Leverages: Leverage is simply some type of advantage that a company enjoys by conducting
business in more than one country. A global company can experience three important types of
leverages.

a. Experience transfers: The experience that a company gains by doing business in one country can be
effectively transferred to some other country if the particular company does business on global scale.
This is called experience transfer (For example) Cocacola first developed a strong marketing strategy to
tap tea and coffee market in India. In 2002 it became a success. From this experience, it then joined
hands with Mc Donalds for marketing hot beverages. The Georgia Gold brand was thus born and it was
first launched in Delhi and Mumbai. This brand is now available in all Mc Donalds outlets throughout
the country. The success of this business in hot beverages with Mc Donalds promoted Coca-cola to
enter into ice-tea and cold coffee Marketing business in 2003.

Another classical example of experience transfer is provided by Hindustan Lever Limited.(HLL).


The occurrence of Iodine Deficiency Diseases (IDD) is very common in developing countries. This disease
can be easily prevented by taking micro quantities of iodine along with salt. The salt thus produced is
called as iodised Salt. This new concept of iodised salt was produced by HLL in India. HLL has now
successfully introduced the concept of iodised salt to other countries like Kenya and Tanzania. The
experience gained by HLL in marketing iodised salt in India has made the company to successfully
market the same product in other African countries.

b. Scale economies: The art of cutting down the cost of production is called as scale economies. One
major cause for scale economies is technology breakthroughs. Many companies are now heavily
infesting in R&D in an attempt to reduce the cost of production. They are attempting to produce
cheaper and more reliable products. (For example). The replacement of vaccum tubes by transistors
and subsequent development of printed circuit boards greatly reduced the labour cost required to
assemble radios, T.VS and tape recorders. By these technological changes the cost of production of T.V
sets greatly reduced and production of TV sets greatly increased. Philips are producing more than 3
billion TV sets now in order to stay in business. So to market such huge volume of production of T.V
sets, Philips needs global application of business.

c. Resource Utilisation: Another strength of global company is its resource utilisation. It can now
successfully outsource its resources globally thereby making better utilisation of resources.

Restraining forces On Globalisation

There are also several factors which restrain Globalisation trend. They are

1. External Factors

2. Internal Factors
1. External Factors: These are government policies and controls which prevents cross-border
business.

2. Internal Factors: These are collection of factors that exists within the organisation that prevents
Globalisation. One such factor is called as management myopia or near sightedness. The company with
an aim to make immediate profit engage itself in short-term plan and target local markets for business.
This is called as management myopia. This acts against Globalisation of business.

Stages of Globalization

1. Domestic Company

Market potential is limited to the home country. Production and marketing facilities are located at home
only. Surplus may or may not be exported. There are no overt efforts to develop foreign markets. It may
add new product lines, serve new local markets but whole planning is limited to national markets only.

Features:

i. Their focus remains with domestic market.

ii. Their productions facilities remain based in home country.Their analysis is focused on the national
market.

iii. They do not think globally and avoid taking risk in going global.
iv. Their top management may have traditional kind of business management competency and less
global expertise.

v. They perceive that there is risk in expanding into global market and thus they try to play safe and
satisfied with whatever gains they are getting in domestic market.

2. International Company

Some ambitious efficient domestic companies after going beyond their domestic marketing capacities
start thinking of expanding their operations in International Markets.The main strategies for entering
international market is:

a) Off-shoring/global outsourcing (seeking cheaper source of raw material or labour)

b) Exporting

c) Licensing

d) Franchising

e) Joint Ventures/Acquisitions

f) Direct Investments

Even though they think of international markets, still they are of ethnocentric or domestic oriented.
These companies adopt the strategy of locating the branches of their companies in other countries and
practice the same domestic operations in foreign markets,including the same promotion, price, product
etc. policies.

Features:

i. Focus on going beyond,domestic

ii. Their management remains ethnocentric with a vision to expand internationally.They extend their
domestic products,domestic prices and other business practices to foreign countries.

iii. They keep their marketing mix constant and extend their operations to new countries.

iv. Their management style remains centralized for their home nation and extended top down to the
overseas market country.

3. Multinational Company

After sometime, international companies realize that the domestic model and practices adopted
through extension policies do not serve the purpose. The foreign customers may not prefer the products
that are sold in domestic market. Hence, these companies respond to the needs of different customers
in different countries and produce such goods and services that will satisfy them.

Features:

i. Companies when they spread their wings to more nations become multinational companies.
ii. Sooner or later they realize that they have to change their marketing mix according to the foreign
market.

iii. This can also be termed as multi domestic,in which different strategies are adopted for different
market.

iv. The management of such companies remains decentralized and even production may be in the host
country.

v. Performance evaluation is done at different host countries.

4. Global

The global company adopts global strategy for marketing its products.It may produce either in the home
country or in any other single country and market its products throughout the world.It may also produce
the products globally and market them domestically.

Features:

i. Such companies have a global marketing strategy.

ii. They either produce in home country or in a single country and focus marketing globally.

iii. They adapt to the market conditions according to the foreign market.

iv. Their performance evaluation is done worldwide.

5. Transnational Company

Transnational Company operates at the global level by way of utilizing global resources to serve the
global markets. It has geocentric orientation and has integrated network.Its key assets are dispersed and
every sub-unit of the company contributes towards achievement of the company objectives. It produces
best quality raw materials from the cheapest source in the world,process them in the country wherever
it is economical and sells the finished products in those markets where prices are favourable.

Feature:

i. Transnational companies have a geocentric approach,which means they think globally and act locally.

ii. Transnational companies collect information worldwide and scan it for use beyond geographical
boundaries.

iii. The vision of such to grow more in a global way.

iv. The R&D,management,product development are shared worldwide.

v. Their human resources procurement and development remains globally.


Distinguish Between Domestic HRM & Global HRM
Domestic HRM Global HRM
HRM is involved with the management of Global HRM is into management of employees in
employees only in one country the three nation categories i.e. The parent
country, The host country and the Third country
HRM role includes hiring people, retaining them, Global HRM plays a key role in the achievement
negotiating their salary, performance of a balance between the need for control and
management coordination of foreign subsidiaries and the need
to adapt to local environments. In order to
manage human resources across countries, the
functional activities of human resource
departments increase multi-fold. These activities
include managing expatriation, cross-country
relocation, international taxation, trans-national
labour legislation, etc.
The HRM department does not have to deal with Global HRM department has to overcome multi-
cultural differences as majority of the employees cultural differences to run a local subsidiary of
belong to the same social community the parent country.
The perspective is narrow as with respect to the The perspective is broader.
Domestic HR issues only
HRM has less involvement with employees Globarl HRM has increased involvement with
personal lives employees personal lives as Managing
expatriates involves relocating their entire
families across countries: this is an important
factor in ensuring employees satisfaction as
satisfied employees are crucial to effective
output.
Risk involved in employee placement or Since human resource activities involve
relocation is less relocation of employees and their families across
a country, which requires substantially higher
costs in terms of their travel, training, and
relocation expenses, the consequences of under-
performance of expatriates or their premature
return from international assignments is much
higher compared to domestic assignment.
Influence of external environment is limited International managers have to take into account
the cultural differences in values, expectations,
behaviours, negotiation, and communication
styles of international workforce while designing
organizations and recruiting, selecting, training,
motivating, compensating, evaluating, and
controlling of employees.
The HR challenges of International Business

According to the research, the senior international HR managers consider three key factors that affect
Human resource management process in an international environment:

Deployment: It means moving the person with right skills to the suitable positions irrespective of
geographical boundaries.

Knowledge and innovation dissemination: It means spreading the best practices and knowledge through
out the organization negating the place of its origin.

Identifying and developing talent on a global basis: It involves screening those candidates who can
perform well in a global environment and also honing their abilities.

It is difficult to maintain global staffing needs as it involves addressing various activities like candidate
selection, assignment terms and documentation, relocation processing and vender management,
immigration processing, cultural and language orientation and training, tax administration,
compensation administration, carrier planning and development and handling of spouse and dependent
matters. For example, in firms like Ford Motor, an HR manager needs to understand different cultures
and the ways to motivate people from different section of the societies. While in China, special
insurance should be provided to cover emergency evacuations for serious health problems. So for a
global HR manager, the job is challenging not just because of the long distances involved but because of
cultural, political, legal and economic differences among the people of different countries.

How inter country differences affect HRM

In a capitalist economy like the United States, the companies dealing within the border of the country
encounter only a limited set of economic, cultural and legal variables. In US, there are some differences
among the laws affecting HR across different states but basic federal guidelines help them to solve such
matters like discrimination, labor relation and safety and health easily.

But a company operating globally will encounter heterogeneity. For example, in UK the minimum legally
allocated holidays are 0 while the same are 5 weeks per year in Luxembourg. In Denmark for a company
having more than 30 employees need a representative on board of directors but the same requirement
is not met in Italy. So, the HR managers need to regularly adapt to the personal policies of different
countries. In general, there are following inter country differences.

Cultural factors: Different countries have different cultures- in other words; they adhere to different
nation's art, social programs, politics and way of doing things. According to the difference in culture, the
management practices vary among different countries. For example, the study of 330 managers in Hong
Kong, the people's republic of China and the United States found that the US managers are most
concerned about getting their tasks done. Chinese managers were more focused on maintaining a
harmonious environment while the managers from Hong Kong were somewhere in between these two
extremes. There are some other finding related to cultural differences which affect the HR policies. For
example, Mexican workers expect their managers to keep distance rather than to be close in
comparison to US employees. In Mexico, individualism is valued less than the United States. So, some
workers expect a wider range of services and benefits from their employers although the lists of cultural
differences are endless. For example, in Germany one is expected to arrive in time and should address
the seniors formally. So the people arriving from different countries need to be oriented in order to
avoid cultural shock.

Economic Systems: The difference of economic systems also affects the HR practices. For example,
France- a capitalist's society- has strict rules regarding the lay off of workers and also limits the number
of hours an employee can work. The labor costs are also substantially different. For example, in US, the
production workers normally get $21.33 while in Mexico it is $5.41, in United Kingdom it is $17.47, in
Germany it is $25.08 while the same is only $5.41 in Taiwan. There are also other factors affecting labor
costs. For example, the working hours differ across different nations. For example, annually the
Portuguese workers devote 1,980 hours of work annually but in Germany, the workers average at only
1,648 hours. In other European economy, the employers are required to pay substantial severance pay
to departing employees that varies from an amount equaling to the salary of last 2 years in United
Kingdom to 1 year salary in Germany. In France, the workers get 2 and half days of paid holidays for
every month of service per year compared to yearly 223 weeks vacation in the United States, Italians get
around 4 to 6 weeks of per year while Germans get around 18 vacation days per year after 6 months of
service.

Legal and industrial relations factor: The industrial relations (the relationship among the work, union
and employer) also vary from country to country. For example, in US it is easy to hire and fire a worker
but the same is time consuming and expensive in Europe. In several European countries, the work
councils replace the Union based system of United States. Work councils are elected by the employees
and they meet once a month to decide policies related to the workers. In some countries like Germany,
there is another principle called co determination. It means that employees can legally affect the
policies of a company. Here, workers have their own representative in the in the top management of the
employer. But in the United States, the employers decide the wage and benefit according to themselves
or by negotiation with the labor unions.

European Union: in the 1990's the European Union was formed in order to provide a common market
for goods, services, capital and even labor. There were several advantages like removal of tariffs as well
as easy mobility among workers across different countries. In early 2002 with the arrival of Euro, further
removed the differences among these countries. Now the European Union laws require multinationals
to consult their workers in case of some events like mass lay offs. After 2008, the companies having
more than 50 employees in the EU were required to consult their workers about all the employee
related actions. But the intra EU differences remain. For example, some countries have minimum wages
while the others do not have the same. There are also differences among the number of annual
holidays, advanced notice of termination, employment contracts. There is also a different trend related
to work contract in between the United States and the European countries. For example, a letter
containing date, job title and initial compensation for the new hire is sufficient in Untied States, the EU
laws ask for a much detailed statement of the job including the terms and conditions of work within the
first two months of the employment. Even the rules vary within the EU, for example, in England the
work contract needs details on rate of pay, date when the employment begins, work hours, the
vacations entitled, disciplinary rules and grievance process. But the same is not required in Germany and
more emphasis is paid on the type and condition of work. Also like Germany, the Italy does not require
written job agreements. But with tying these differences will fade away in EU and the cultural
differences will be translated into different management practices.
Global differences and similarities in HR practices

HR practices are different for each country because of the difference in culture, legal/ political systems
and economics. In 1990's, the best human resource scholars from 13 countries conducted a survey on
international human resource management practices. They did the following analysis.

Personnel selection procedures: The selection criteria for employees are almost similar around the
globe. In United States, the employees are ranked on their ability and skills to perform the required job
as well as some work experience in some similar job. The same was true for countries like Australia,
Latin America but in Mexico, "having the right connections" were the top priority of being selected or
being hired by employer. In Korea, Indonesia and People Republic of China, for selection the emphasis is
paid on "employee test". But in Japan and Taiwan, the main consideration for job was "the person's
ability to get along well with others already working here".

The purpose of performance appraisal: Different countries use different methods to do performance
appraisal. For example, in Taiwan, United States and Canada the employers rank their employees to
determine pay but the same is not important in Korea and Mexico. In Japan and Mexico, the main
purpose of the performance appraisal is "to recognize sub ordinates". In Untied States, Australia and
Taiwan the employers use performance appraisal to evaluate the employee's performance.

Training and development practices: Generally, all the countries share a lot of similarities when it comes
to the purpose of providing training and development programs. All around the globe, the employers
provide training programs in order to improve the technical abilities of their employees. But there is a
variant in the form of the amount of training to be provided. The training expenditures is highest in
United States with per employee expenditure of $724 followed with Japan $359 and the least
expenditure per employee is for rest of Asia at $241. Like wise, the total training hours per year for
employees in Asia is at 26 but in Europe, it is at 49. All the employers in the world provide majority of
the training as class room training programs.

The use of pay incentives: In United States, the employers prefer to pay employees for their
performance in comparison to People's Republic of China. Despite of these, the incentives play only
"moderate" role in US pay packages. In China, Japan and Taiwan, the incentives play a major role in the
pay packages.

Perspectives of International HRM

Some of the most important perspective of international HRM are as follows:

1. Cultural Factors 2. Economic Conditions 3. Labour Cost Factors 4. Labour Relations Factors.

Perspective influences practices. That the perspective of international HRM will differ from the
indigenous one, the delineation of the former seems in the fitness of the context. The major factors that
form perspective for international HRM and, in turn, influence HRM practices are scanned as cultural,
economic, political, labour cost and industrial relations. These are discussed below:
1. Cultural Factors:

Culture means shared beliefs, values, norms, and moral by the people. Organisational culture means a
pervasive underlying set of beliefs, assumptions, values, shared feelings and perceptions, which
influence the behaviour of people in the organisation. The same distinguishes one organisation from
another.

Similarly, at macro level too, wide ranging cultural differences exist across the nations/countries. For
example, the eastern culture widely varies from the western one. Just to quote, the incentive plans in
Asia (Japan) tend to focus on the work group, while in the west the more usual prescription is still to
focus on individual worker incentives.

The research work of Geert Hofstede undertaken into IBM using the responses of managers from 66
different countries produced some interesting evidences on cultural differences. In his study Hofstede
found that societies differ on four primary dimensions which he called: power distance (PDI),
uncertainty avoidance (UAI), individuality (INV) and masculinity (MASC).

A brief discussion of these follows:

Power Distance (PDI):

By power distance Hofstede means the extent to which members of a society accept that power in
institutions and organisations is and should be distributed equally. Accordingly, the distance between
the government and the governed is narrower in democratic societies like India than in dictatorial ones
like Philippines. This means, Hofstede concludes, the workers in India will have far more chances of
influencing decisions of the government than would the workers in Philippines. According to him, the
same applies to organisations also.

Uncertainty Avoidance (UAI):

In simple terms, uncertainty avoidance means the creation of set of rules and structures to eliminate
ambiguity in organisations and support those beliefs that are promising for certainty and conformity.
Differences abound among countries from this point of view also For example, while at work place, the
Indians, Germans and the French feel a much greater need for rules and regulations than do the Swedes
and the British. The attitude of uncertainty avoidance is much frowned on in high PDI countries like
Philippines and Germany.

Individualism (INV):

In simple terms, individualism means the degree of preference of individuals expected to look after
themselves and their immediate families. Just reverse is collectivist. From this stand point, USA and
Britain score high on the individual index and Indonesia and Pakistan score low. What these mean is the
preference for living and working in individual and collectivist ways respectively.

Masculinity (MASC):

By masculinity, Hofstede means the extent to which the society values assertiveness (masculinity) and
caring (femininity). In simple terms, masculinity pertains to those societies in which social gender roles
are clearly distinct, that is, men are supposed to be assertive tough and focused on material success.
Femininity pertains to societies in which women are supposed to be more modest, tender and caring for
the quality of life.

As per this index, Japan and Australia ranked high in masculinity, while Denmark and Sweden ranked
low. It is also important to note that in Japan, the most masculine country, women seem to retain their
feminine values. However, in Sweden, the least masculine country as per the index, feminine values
applies also to men.

2. Economic Conditions:

Like cultural differences, there abound economic differences among nations/countries. Differences n
economic conditions or systems cause inter-country differences in HR practices. For example, in case of
a country with free enterprise systems, the need for efficiency tends to favour HR practices and policies
that encourage productivity, efficient workers, etc. On the other side, when one moves along the scale
toward more socialist systems, HR practices tend to shift toward different direction like preventing
unemployment. It may do so even at the expense of sacrificing efficiency.

3. Labour Cost Factors:

HR practices are also influenced by differences in labour costs existed in different countries. If the labour
cost is high, it can require more focus on labour efficiency which, in turn, can influence HR practice to
shift toward improving labour performance. Labour may get remuneration as per performance i.e., pay-
for-performance.

Evidences are available to mention the inter-country differences in labour costs. Labour cost is quite
more in U.K. than in India, for example. Wide gaps in hours worked also exist among the countries which
also need to be considered while studying HR practices in a particular country.

Intra-country differences in hours worked exist across organisations. For example, in India, there is 5
days week (work) in the central government departments, while its 6 days week in the state government
departments. This affects HR practices such as vacations between the two types of organisations in the
same country.

4. Labour Relations Factors:

Labour relations or industrial relations i.e., relationship between employees, employers and the
government that vary from country to country and have an enormous bearing on affecting HR practices.
For instance, in Germany, codetermination is the rule. Here, the employees enjoy legal right to have
their voice in the matters of their company.

On the other hand, in India and many countries, the State has its role to play in the relations between
employees and employers. In India, for instance! HR policies on most matters such as compensation
(wages/salary) and retirement benefits are set by the government. The government does so by
enactment of the various Acts such as the Minimum Wages Act, 1948, The Payment of Gratuity Act,
1972, the Payment of Bonus Act, 1965, etc. The HR policies are determined accordingly. As seen above,
wide inter-country differences in culture, economic systems, labour costs, and industrial relations
systems affect HR practices. Hence, HR managers need to consider these impacts and evolve HR
practices for business operations conducted globally.
Dimensions of International HRM

According to P.V. Morgan: IHRM is the interplay among 3 dimensions:

HR Activities

Types of employees

Types of Countries

1. Broad activities of IHRM procurement, allocation and utilization of human resources cover all
the six activities of domestics HRM i.e, HR planning, Employees Hiring, Training and
Development, Remuneration, Performance Management and Industrial Relations.

2. The three national or country categories involved in IHRM activities are:

a. The host country where subsidiary may be located


b. The home country where the company has its head quarters and
c. Other countries that may be sources of labour or finance.

3) The three types of employees of an international business are Parent Country Nationals (PCNs) ,
Host Country Nationals (HCNs) and Third Country Nationals (TCNs). For example, IBM which employs
Australian citizens in its Australian operations, after sends US citizens to Asia Pacific countries on
assignment, and may send some of its Singaporean employees to its Japanese operations.
Expatriate : A Parent country national sent on a long-term assignment to the host-country assignment

Inpatriate : A host country national or third country national assigned to the hoem country of the
company where it is headquartered.

Repatriate : An expatriate coming back to the home country at the end of a foreign assignment

Significance of IHRM in International Business


Scullion (2001) outlined 10 major significance of IHRM in globally business environment. This
significance can categorised in 5 key areas:

CHALLENGE:

1. Rapid growth of internalization and global competition has increased the nos. and
significances of MNCs resulting in the increased mobility of human resources.
2. Increasing no. of strategic alliances and cross border mergers and acquisitions has
increased the strategic implementation of IHRM as Global business.

COMMITMENT:

1. World wide recognition of management of human resources in international business


and cross cultural management.
2. Business Networks and Horizontal communication and HR plays a vital role.

COST EFFECIVENESS:

1. The performance of expatriates. (poor performance of expatriate may affect the market
share and damage to foreign relations)
2. Growing Importance of Expatriates in International Business.

COMPETENCE:

1. Global Strategy Implementation.


2. Success or failure of international business based on effectiveness of management of HR.

CONGRUENCE:

1. Learning, knowledge acquisitions have been identified as important potential sources of


comp. advantages for MNCs. This has also enhanced the role of IHRM to meet the key
strategic challenge of objectives.
2. Knowledge management is an important source of comp. advantage for MNCs, where
IHRM is the key partner and plays a central role.
Creating a Balanced Score card for HR

The starting points of the balanced scorecard are the vision and the strategy that are viewed from four
perspectives: the financial perspective, the customer perspective, the internal business processes and
learning & growth.

As the name suggests, the equilibrium or balance is an important principle in the balanced scorecard
model.

There must be a balance between the short-term and the long-term objectives, financial and non-
financial criteria, leading and lagging indicators and external and internal perspectives.

It is about cohesion in which an improvement in one perspective must not be an obstacle in another
perspective.

This cohesion is reflected in the model through the mutually connected arrows between the four
perspectives.

The implementation of the balanced scorecard consists of a number of steps.


The first step in this is that senior management sets up a mission, vision and strategy.

This strategy is linked to a number of objectives which are referred to as strategic objectives. Then
middle management is informed about the mission, vision and the strategic objectives.

In an open discussion, managers can express their opinions, indicate the critical success factors per
perspective and they can point out or set up indicators themselves so that these can be monitored in
the future.

For the financial and customer perspectives within the balanced scorecard it is possible to carry out a
survey or conduct interviews among the (potential) shareholders or customers to assess what their
expectations are.

This could provide an insight into the direction of the objectives the necessary objectives.

In consultation with middle management and senior management several objectives are formulated in
which the different critical success factors are indicated per objective, the indicators are used to
measure this, specific values such as targets and initiatives are meant to achieve these objectives.

It is possible to go one step further by linking personal objectives to the objectives of middle
management.

As a result, all personal initiatives will contribute to the chosen strategy of the organization. The
implementation of the balanced scorecard model can be carried out in different manners.

Broadly, this could include the following steps:

1. Set up a vision, mission and strategic objectives.

2. Perform a stakeholder analysis to gauge the expectations of customers and shareholders.

3. Make an inventory of the critical success factors

4. Translate strategic objectives into (personal) goals

5. Set up key performance indicators to measure the objectives

6. Determine the values for the objectives that are to be achieve

7. Translate the objectives into operational activities.

It is important to mention that achieving strategic objectives is a continuous process: plan-do-check-act


(see PDCA- or Deming circle).

Setting up and implementing the balanced scorecard model is therefore not a one-off action!

Using the area of recruiting as an example, a balanced scorecard would look something like this:

Objective: Reduce turnover costs.

Description: Develop effective recruiting methods and new-hire orientation methods to


optimize the retention of new hires.
Actions:

o Identify key attributes of successful employees who stay at the company for two or
more years.

o Utilize technology more effectively for recruiting and screening applications.

o Identify selection methods that will contribute to successful hires.

o Integrate branding efforts into recruiting.

o Revise the orientation program to ensure new-hire retention.

Measures:

o Cost-per-hire (financial).

o Turnover rates and costs (financial).

o Time-to-fill (business process).

o Customer satisfaction with new-hire performance (customer).

o New-hire satisfaction with orientation (learning and growth).

o Supervisor satisfaction with orientation (learning and growth).

When it is successfully executed, the HR scorecard can be an extremely useful method of aligning HR
with the companys strategic plan. The key to success is careful planning and execution.

Why Is it Important for HR Management to Transform From Administrative to Strategic


Contributors?
Human resource management can be approached in two fundamentally different ways. Human
resources employees can fill purely administrative roles, simply facilitating the paperwork involved for
tasks such as hiring new employees and handling workers' compensation insurance. Or HR employees
can become strategic contributors to company success. Transforming the HR function into a strategic
contributor can take your workforce strategies to the next level, increasing the value of your human
capital to accrue distinct competitive advantages.

Competitive Advantages

Strategic human resource management is all about creating a competitive advantage through a
company's workforce. Employing dedicated, experienced, motivated and well-trained employees can
increase efficiency and productivity in operations, as well as enhancing product quality and the
customer experience. Strategic HR managers are concerned with hiring employees with high potential
for professional growth, then giving employees ample opportunity to learn and grow in their job roles.
Developing employees with top-level expertise in their fields can grant you access to the brightest minds
in the industry, putting you on the leading edge of innovation.
Executive Succession

Small business success can be inseparably tied to the expertise, passion and personal contacts of
company owners. Because of this, executive succession planning can be vital in small businesses. Purely
administrative HR managers do not think about a replacement for top managers or company owners
until it is too late. Thus an interim manager may have to step in while company ownership is formally
transferred. Strategic HR managers work with company owners to spot potential successors early,
grooming them through years of experience, advancement and mentorship to be ready to take the reins
of the company when the owner passes away or decides to retire. Strategic succession planning can
keep a company heading in the right direction after a major leadership change.

Labor Cost-Efficiency

Administrative HR departments dispense pay raises almost as a matter of course, using arbitrary metrics
such as the number of years an employee has been with the company to determine compensation.
Strategic HR departments learn to promote and compensate their top performers -- those who
contribute the most to organizational goals and long-term company success. A strategic HR philosophy
ensures that the highest compensation is being paid to employees with the largest contributions to the
firm, rather than those who have warmed a chair in the office longer than others.

Legal Compliance

Purely administrative human resources departments handle legal issues reactively, putting policies in
place to prevent costly incidents from re-occurring. Strategic HR managers proactively put policies in
place to keep their companies on the right side of employment laws, including workplace discrimination
issues and equal employment opportunity laws. A strategic HR department would identify the fact that a
building does not provide access for handicapped individuals before a problem arises, for example.

Dave Ulrich's idea was that the HR function should be divided into three:

what are normally called shared service centres (SSCs), groups that deliver the traditional HR services
(and do jobs that can often be easily outsourced);

something described as centres of expertise (COEs), which house the designers of remuneration
packages that ensure an organisation can attract the people that it needs;

business partners, HR people whose job it is to do high falutin' strategic thinking.

The role of business partners has been subject to a wide range of interpretations. Some companies have
chosen to appoint hundreds of them; others have appointed just a few. One large organisation with
60,000 employees has 350; another, with some 50,000 employees, has just two. A 2004 study of 20
large American companies by PricewaterhouseCoopers's Saratoga Institute found a median ratio of one
HR business partner for every 1,000 employees.
How Does HR Add Value to an Organization?
For companies that consider employees their most valuable assets, human resources has extreme value.
In the most general sense, HR serves to motivate employees to top performance and maintain an
organizational culture of high morale. In the early 21st century, strategic HR has emerged as a
prominent view of the role this functional area plays in building and developing a strong organization.

People and Performance

In a March 2011 McKinsey Quarterly article, Nora Gardner, Devin McGranahan and William Wolf
explained that more companies are finally coming around to the common-sense understanding that HR
manages a key link to company success -- people and performance. The long-term success and financial
performance of a company is usually directly correlated to the talents, motivation and accomplishments
of its people. People make and sell products, work with customers and collaborate on decisions. A
primary way HR adds value to a company is by promoting this link and persuading company leaders to
train and develop employees and reward strong performance.

Talent Acquisition and Retention

Hiring and retaining top talent is a foundation of high-performing companies. HR is largely responsible
for building and managing the systems that recruit, attract, hire, train, motivate and retain a company's
best employees. This includes establishing strong job designs and hiring the right employees to match. It
also involves building strong interviewing and screening processes, planning orientation and training,
developing successful employee evaluation tools and constructing motivating compensation programs.

Legal Protection

One of the less-heralded ways HR adds value to a business is through legal protection from
discrimination and wrongful termination lawsuits. HR professionals must be continually up to speed on
employee laws and educate company executives and managers. They must also design hiring and
promotional systems that promote fairness and equality. Interview questions that align specifically to a
job, for instance, minimize risks of a discrimination claim. This element of HR becomes increasingly
valuable as workplaces become more diverse.

Planning

As proactive HR strategies have overtaken reactive responses to employment conditions, HR


professionals play a stronger role in planning. HR directors commonly serve on company management
teams and participate in strategic planning. This includes assessments of company strengths and
weaknesses and projections of opportunities and threats. HR participants contribute the current view
and future expectations of people and resource needs, discussion of compensation and training changes
and research on emerging opportunities and threats.
What is the impact of Globalization on HRM?
A powerful force impacting organisations worldwide is the process of globalization, which refers to the
intensification of worldwide economic and social inter dependencies and the multiplicity of linkages and
interconnections between states, societies and organisations.

Globalization describes the process by which events, decisions and activities in one part of the world
come to have significant consequences for individuals and groups in distant parts of the globe. Processes
of globalization accelerate change, lead to turmoil in the markets in which organisations operate and set
the stage for intra- and inter-organisational change as a reflection of the turbulent environment.

As a result , domestic and international competition has increased and so the human resource
management is being given a key role. The following changes in human resource policies and
programmes are observed.

(1) With manpower costs going up, and the need to bring product prices down to meet competition,
manpower productivity has become a central issue in organizations. Human resource professionals will
have to play a critical role to fulfill this need.

(2) Another area of intervention would be in the case of joint ventures where professional will have to
predict and manage culture-fit policies. Companies are focusing on people with the right profiles as also
those who are more capable.

(3) There is increasing emphasis on training, retraining, and to tap latent talent and its retention.

(4) Companies have started paying attention to career growth and career planning for employee.

(5) Companies are showing increasing willingness to retain talent and redeploys manpower when
necessary.In some industries, Indian employees are being sought after abroad. This, coupled with
competition for employees among Indian companies, has led to an alarming attrition rate for some
companies. To meet ambitious career aspirations and salary expectations, human resource departments
are using industry-wise benchmarking for salary revisions.

(6) Employee compensation is being linked and programmes are becoming more focused, responsive
and are also constantly reviewed against the external environment.

(7) Contemporary practices, policies and programmes are becoming more focused, responsive and are
also constantly reviewed against the external environment.

(8) Globalization has resulted in an influx of foreign managers to India. There is evidence of greater
mobility both within India and abroad. Furthermore, there is greater integration with world market
dynamics and practices.

(9) Corporate restructuring and redefining of roles are areas also under focus.

(10) As many organisations are expanding into markets outside their national bases, research into
conflict around work and organisations needs to address both cross-border ventures and cooperation in
multinational teams within domestic organisations. By entering into cross-border Greenfield
investments, joint ventures, cross-border alliances, mergers and acquisitions, organisations seem to be
severing their geographical ties with one national economy and are transforming into multinational or
even transnational corporations. While advantages of such moves are an increase in scale,
organisational growth and innovation, increased risks of conflict and failure have a countervailing effect.
Market failure arising from asymmetric information in different environments, clashing legal systems
and cumbersome bureaucracies, as well as miscalculations caused by unfamiliar business practices and
cultural differences, are more likely in the case of cross-border transactions than in purely domestic
transactions.

Much depends on the ways in which members of the organisations in question respond to the fact that
such challenges upset intra-organisational management practices, work routines, group cohesion and
identification. In sum, multinational cooperation in cross-border ventures and multinational teams
implies intra- and inter-organisational change with a potential for conflict at different levels.

At the contextual level, it manifests itself in complex relationships between multinational organisations
and their socio-economic and political environments.

At the institutional and professional level, it manifests itself through the rearrangement of work units
and the formation of new teams, comprising staff from different professional backgrounds, levels of
training and experience, and organisational cultures and sub cultures.

At the social and cultural level, it manifests itself in terms of increasing diversity within organisations
with teams including individuals who represent different ages, gender and ethnic, religious and cultural
groups.

Human Resource Management has been affected by a number of trends including globalization, changes
in technology, demographics of the workforce, ethical issues and pressures to show that its practitioners
add value to the organization.

Globalization has resulted in specific challenges to HRM including

(i) How to enhance global business strategy,

(ii) How to align HRM with business strategy,

(iii) How to design and lead change,

(iv) How to build global corporate culture

(v) How to develop leaders.

(11) Changes in technology have affected how traditional HRM activities are managed.

(11 (i)) For example, payroll and information systems can be more effectively and efficiently handled
through better technology.
(11(ii)) The use of web recruiting and e-learning has grown tremendously. This increased use of
technology and speed is evidenced by the greater usage of technological learning opportunities such as
online journaling , blogs, wikis as well as web discussions and online simulations.

As trends have emerged, HRM professionals have been expected to occupy new roles, and some have
suggested that the former functional HRM role has been supplanted by a more strategic role which
requires new competencies. Many new or enhanced roles for HRM practitioners have been described by
numerous writers, and although many of these roles overlap, there are some that do stand out. For
example, one key role for practitioners seems to be that of change manager, learning to better assist
organizational managers to deal with change. Also, HRM practitioners must begin to act as a business
ally, by taking roles as strategist and continuing to show how HRM adds value to the organization
HRM practitioners are under pressure to show how they add value to the firm.

Thus HRM practitioners must become competent in the use of Return On Investment tools, develop
skills in influencing others (especially key decisions makers), show how meeting the needs of diverse
firm stakeholders adds value, and create an action plan that prioritizes those needs.

Explain the International Perspectives of HRM

Globalisation has made us a multi-cultural society which has implications on human resource
management. There are four theoretical frameworks that explore the influences on HRM across
international boundaries, including: cultural, institutional, universal and contingency perspectives.

The cultural perspective suggests there are clear cultural differences between nationalities and these
should be recognised. Multi-national corporations which accept and recognise these cultural differences
in managing employees through HR practices will be successful in their host countries.

The institutional perspective accepts there are differences that need to be understood and recognised
within societies and these have an impact on the HR practices, but it rejects the concept that certain
practices, such as recruitment and selection, performance management and reward lead to improved
organisational performance as these practices may mean different things within different societies.

The universal perspective approach claims that certain HR practices, such as performance management,
recruitment and selection and reward lead to higher organisational performance. Marchington and
Wilkinson (2012) further highlight that in their belief that HR practices that are successful in the home
country should be adopted into the host country. A criticism of this viewpoint is that it does not take
into account internal and external factors, such as the characteristics of the organisation or the culture
of its host country.

Finally, the contingency perspective depends on both the internal and external factors of an
organisation for the take up of HR practices. The key features for HRM are the location of the
organisation, the product market, the organisations life cycle stage and if the organisation is privately
owned or a joint venture. Each of these factors will have an effect on HRM, for example where the
organisation is based will depend on the HR practices and policies it deploys.

Influences and Implications on HRM

Marchington and Wilkinson (2012) argue that the influences and implications on HRM in multi-national
corporations depends on the type of organisation, its product life cycle and the core belief of its
hierarchy. Edwards (2011) takes this view further and outlines that the influences are categorised into
home country/country of origin effects, dominance effects, international integration effects and host
country effects.

The home country/country of origin view supports the enforcing of headquarter HR practices from the
home country across all countries where there is a subsidiary. All countries where there is a subsidiary
for the multi-national corporation will adopt a single approach to HR practices, such as recruitment and
selection, reward and performance management. Using this model means the MNC doesnt take into
account local culture and practice when implementing HR practices.

The dominance effect supports a standard approach of HR practices across all countries for the multi-
national corporation as this is seen to be best practice internationally. Again this doesnt take into
account local culture and practices in which the MNC operates.

The international integration effect relates to the extent at which the multi-national corporations build
closer relationships across different boarders. MNCs may move their headquarters from their home
country to other regional countries, adopting their exiting HR policies whilst also bringing some best
practice from the home country.

The host country effect adopts the HR practices and policies of the host country in which the multi-
national corporation operates in. This could be due to it being too difficult to enforce the home country
HR practices and policies due to cultural differences or the practices and policies in place do not need to
be changed.

Globalisation is seen to be a complex and controversial subject with many supporters and critics. The
implications on HR for multi-national corporations are dependent on a variety of factors. Market
pressures and local influences, such as culture, have strong implications on HR practices implemented
by multi-national corporations with research supporting the view of the complexities and different
influences. It can be argued therefore that there is no one best fit for HR practices for all organisations
across the globe, but there are some best fit processes that can be incorporated along with the local
culture and business practice.

Organisations are becoming more international and having systems, policies and process in place to be
able to deal with this changing landscape of workforce is paramount. A system for employees which
supports multiple language and different date formats will help improve engagement as they can
manage their own data in their native language. This also enables organisations to roll out employee
self-service access to other countries, as well as providing other country employees to use the
application in their chosen language
Implications of Global Market with respect to HR functions
Globalization, the process of integrating a business's operations and strategies across a wide array of
cultures, products and ideas, is having an impact on the role of human resource managers. Once
concerned with the impact of local issues on employees, human resources must now consider the
effects of workforce diversity, legal restrictions and the interdependence between training and
professional development on the organization. As such, the five main functions of global human
resource management are vital concepts to the strategic operation of a business.

Recruitment

Attracting, hiring and retaining a skilled workforce is perhaps the most basic of the human resources
functions. There are several elements to this task including developing a job description, interviewing
candidates, making offers and negotiating salaries and benefits. Companies that recognize the value of
their people place a significant amount of stock in the recruitment function of HR. There is good reason
for this -- having a solid team of employees can raise the company's profile, help it to achieve
profitability and keep it running effectively and efficiently.

Training

Even when an organization hires skilled employees, there is normally some level of on-the-job training
that the human resources department is responsible for providing. This is because every organization
performs tasks in a slightly different way. One company might use computer software differently from
another, or it may have a different timekeeping method. Whatever the specific processes of the
organization, human resources has a main function in providing this training to the staff. The training
function is amplified when the organization is running global operations in a number of different
locations. Having streamlined processes across those locations makes communication and the sharing of
resources a much more manageable task.

Professional Development

Closely related to training is HR's function in professional development. But whereas training needs are
centered around the organization's processes and procedures, professional development is about
providing employees with opportunities for growth and education on an individual basis. Many human
resource departments offer professional development opportunities to their employees by sponsoring
them to visit conferences, external skills training days or trade shows. The result is a win-win: it helps
the employee feel like she is a vital and cared-for part of the team and the organization benefits from
the employee's added skill set and motivation.

Benefits and Compensation

While the management of benefits and compensation is a given for human resources, the globalization
of companies in the twenty-first century has meant that HR must now adapt to new ways of providing
benefits to an organization's employees. Non-traditional benefits such as flexible working hours,
paternity leave, extended vacation time and telecommuting are ways to motivate existing employees
and to attract and retain new skilled employees. Balancing compensation and benefits for the
organization's workforce is an important HR function because it requires a sensitivity to the wants and
needs of a diverse group of people.
Ensuring Legal Compliance

The final function of human resource management is perhaps the least glamorous but arguably of
utmost importance. Ensuring legal compliance with labor and tax law is a vital part of ensuring the
organization's continued existence. The federal government as well as the state and local government
where the business operates impose mandates on companies regarding the working hours of
employees, tax allowances, required break times and working hours, minimum wage amounts and
policies on discrimination. Being aware of these laws and policies and working to keep the organization
completely legal at all times is an essential role of human resources.

HR Roles in Internationalization

Managing International Human Resource Activities


The top six ways for managing international human resource activities are: 1. Staffing 2. Recruitment
and Selection 3. Managing Expatriates 4. Training and Development 5. Performance Management 6.
Compensation.

1. Staffing:

Staffing refers to the process of determining the organizations current and future human resource
requirements to meet the organizational goals and taking appropriate steps so as to fulfil those
requirements. The process involves identifying the human resource requirement of an organization, and
recruitment, selection, and placement of human resources.

Human resource planning refers to the process of forecasting supply and demand for the organization
and the action plan to meet its human resource requirements. It is the decision-making process as to
what positions a firm has to fill and how to fill them and places optimally the human resource systems in
the organization.

The process by which an organization estimates its future human resource needs is termed as human
resource forecasting.

International companies need to assess their human resource requirements, assess availability of right
type of manpower, decide upon the form and type of international assignments, evaluate pros and cons
of alternative sources of personnel for international staffing, and select an appropriate approach for
international staffing.
Manpower availability:

Availability of desired manpower affects a firms decision to hire locals or expatriates. MNEs often hire
locals for lower level jobs except for some countries such as in the Middle East which import people
even for labour and other low-paid jobs.

However, for most skilled and professional assignments, quality of educational system, availability of
scientists and engineers, and quality of management schools play an important role in a firms decisions
to hire locals or expatriates.

Based on organizational goals and objectives, various forms of international assignments may be
classified as follows.

Filling up job positions:

Trans-national companies often fill up job positions through expatriates when host country nationals
with required skill-base are not available. Foreign postings are often required for filling up key positions
or technical positions even at a middle or lower level.

Besides, international assignments are strategically needed in order to maintain better co-ordination
and higher level of control over foreign operations through international transfers.

Management development:

Foreign assignments facilitate development of managers and prepare them to take up higher
responsibilities at the international level.

Organizational development:

Increasing use of expatriates to fill up key positions facilitates development of a team of global
managers with strong communication networks at the international level.

Types of international assignments:

Depending upon the purpose of assignments and nature of tasks, MNEs often transfer their employees
internationally. Based on the duration of stay, international assignments may be classified as

Short-term (up to three months):

Assignments related to small project work, machinery or plant repairing, or an interim arrangement till a
suitable permanent arrangement is made

Extended (up to one year):

Involving similar activities as for short-term assignments for a relatively longer duration

Long-term (one to five years):

Also referred to as traditional expatriate assignment, involve a well-defined role in foreign operations.
Assignments, such as production or marketing manager or a managing director of a subsidiary
Within the above categories of international assignments, there may be non-standard assignments as
well:

Commuter assignments:

Special arrangements where a person travels from one country to another for work. For instance, a
professor residing in New Delhi travels to Washington or Singapore once in a fortnight or a month to
take classes and teach a course.

Rotational assignments:

An arrangement where the employees travel from home country to a foreign country either on
rotational basis or with breaks in-between. For instance, an institute runs a long-duration management
programme in a foreign country and professors travel to take different courses related to their areas of
competence on rotational basis.

Besides, such rotational assignments are used in certain areas of international project management,
such as oil-rigs.

Contractual assignments:

When a specialized skill is vital to managing a project or is required for a short duration, contractual
assignments are often preferred over permanent assignments as they offer little long-term liability on
part of the organization. Such assignments are common in teaching, research and development, and
project management.

Virtual assignments:

It refers to assigning international responsibilities to home base managers for organizing foreign
activities. Such virtual assignments are often used either due to cost reasons or scarcity of mobile
employees willing to accept long-term foreign assignments.

Sources of Human Resources for International Staffing:

Multinational companies can source human resources from the following major sources.

Local citizens or HCNs:

Local employees hired by an MNE of the host country are known as HCNs. A large number of
MNEs engage host country citizens for middle and lower level jobs.

Pros:

i. Conversant with the host country business environment

ii. Familiarity with host country culture and language


iii. Often less expensive compared to PCNs

iv. Increases morale of HCNs due to greater prospects of career growth

v. Longer duration of stay in the MNE by HCNs leads to continuity of management and
improvements

Cons:

i. MNEs often fear lack of effective control and coordination over subsidiaries by appointing
HCNs at key positions

ii. HCNs may have difficulty in communication with headquarters

iii. HCNs have limited career opportunities outside the subsidiary

iv. Hiring HCNs may lead an MNE to become federation of national units rather than a truly
global organization

Expatriates:

Employees who temporarily reside and work outside their home country are commonly known
as expatriates or expats.

Expatriates are often used as agents of direct control, socialization, networking, and gathering
business intelligence. Expatriates may be either PCNs or third country nationals (TCNs) as
discussed below.

Parent country nationals (PCNs):

Employees who are citizens of the country where the MNE is headquartered are known as PCNs
or home country nationals. Historically, MNEs filled up key positions in their foreign affiliates
with PCNs.

Pros:

i. Familiarity with parent companys objectives, strategies, policies and practices

ii. Facilitates higher level of organizational control and coordination

iii. Availability of highly talented managers with special skills and experiences

iv. Promising managers from parent headquarters are deputed for international assignments

Cons:
i. Employing PCNs is often more expensive compared to HCNs or TCNs

ii. Difficulty in adapting to foreign country environment in terms of foreign languages and socio-
economic and cultural issues

iii. Appointing PCNs at key positions by MNEs is often perceived by HCNs as blocking their
career growth opportunities within the organization

iv. Tendency of PCNs to impose the headquarters style on its subsidiaries often overlooking the
local needs

v. Differences in compensation packages between PCNs and HCNs is often perceived as


discriminatory by HCNs

Third country nationals (TCNs):

Employees, who are citizens of countries other than the country in which they are assigned to
work or the country where the MNE is headquartered, are often referred to as TCNs.

In countries with lower level of skill base, such as African and Latin America, MNEs often
employ TCNs from countries with cost-effective availability of skilled manpower and
professionals from countries such as India rather than from their home country where the
workforce is relatively more expensive.

Pros:

i. It is easier to find TCNs as global managers with high level of skills and competence

ii. Cost of employing TCNs is generally lower compared to PCNs

iii. Trans-national relocation of personnel creates opportunities for career advancement and
motivates employees

iv. Cross-country transfers contribute to build up a truly global work-force leading to a global
corporation

Cons:

i. Reluctance and resentment by host country government towards hiring TCNs

ii. Diplomatic sensitivity of host country in employing personnel from certain nationalities

iii. Some TCNs may be reluctant to return home after a foreign assignment

Inpatriates:
As opposed to expatriates, employees assigned to work in the MNEs home country who are
citizens of either a host country of firms operation or a third country are termed as inpatriates.
In order to meet international competition, MNEs increasingly make use of inpatriates. This
facilitates MNEs to develop their global core competencies.

MNEs often use a mix of personnel based on the company need, its HR strategy, and availability
of right type of employable workforce. For instance, Microsoft employs Indian citizens (HCNs)
for its Indian operations, often sends US citizens to its Japanese operations (PCNs), and sends
British citizens to its Middle East operations (TCNs).

Off-Shoring:

Off-shoring refers to transferring jobs to foreign countries which were previously carried out
domestically. The breakthroughs in information and communication technology have made it
possible to off-shore various service activities too.

The human resource department has the prime responsibility to identify low cost, high quality
personnel abroad and equip them with company information to carry out their assigned tasks
efficiently.

Besides, an effective supervisory and management structure is also to be put in place so as to


carry out screening, provide necessary trainings, and monitor their performance. The motivation
level of employees located at vast geographical distances is also to be maintained by way of
conducive working conditions, compensation, and benefits so as to get maximum output and
curb attrition.

International Staffing Approaches:

Since an MNE has to operate under cross-country business environment, its strategic approaches
to international staffing may be categorized into four broad categories, as elucidated in Exhibit
17.1 such as ethnocentric, polycentric, regiocentric, and geocentric.
2. Recruitment and Selection:

Recruitment refers to the process by which an organization attracts the most competent people to
apply for its job openings whereas selection refers to the process by which organizations fill their
vacant positions.

The process of recruitment and selection varies widely among countries. For instance, extensive formal
testing and screening techniques are often employed in Asian countries where people are highly test-
oriented and comfortable with formal tests.

Testing is often discouraged in the US due to its negative impact on equal employment opportunities
and affirmative action efforts. Europeans test considerably more than Americans but not as much as
Asians. Rigorous staffing practices such as formal testing are used even less in Canada where equal
employment and human rights legislation is even more restrictive compared to the US.

Characteristics of global managers:

Traditionally, managers used to specialize not only in their functional area but also in the geographic
region of their operations so as to effectively respond to its specific business demand.

However, during recent years, rapid rise in globalization of businesses has led to the emergence of a
new breed of global managers with multi-lingual and multi-cultural skills and trans-national experience.
The common traits of global managers are summarized here.

Global mind-set:

To pursue global business strategies of a firm, its managers need to understand the interdependence of
rapidly changing business environment on firms activities. The global mind-set is characterized by
identifying similarities across countries and adapting business strategies to local conditions. It calls for
managers to think globally, but act locally.

Strategic vision and long-term perspective:

Global managers should have a strategic vision and be persistent to pursue the long-term goals of the
organization.

Ability to work in diverse cultures:

International managers are often required to work with people with diverse cultural backgrounds.
Therefore, they should be able to develop a quick understanding of different cultures and deliver results
under multicultural environments.

Willingness to relocate for international assignments:

Depending upon the requirements of an MNE, international mangers should be willing to relocate
across countries for taking up the challenges of new assignments.

Ability to manage change and transition:


International managers often come across novel business situations in different countries which require
innovative solutions. Therefore, the ability to manage organizational change and transition is key to the
success of international managers.

Selection criteria for international assignments:

An MNE needs to decide upon the factors to select personnel for international assignments. Depending
upon the companys experience of its international operations and culture, a firm may choose one or
more factors from those discussed below and adopt a model by assigning those appropriate weights.

Technical and managerial competence:

Most companies place high priority on technical and managerial skills to determine suitability of
potential managers for international assignments. Academic background, job experience, skills acquired,
and past performance of the employees within the company and their previous jobs often serve as
useful measures to assess their competence for international assignments.

Ability to perform under cross-cultural environments:

Managers selected for international assignments should have the ability to operate under diverse
cultural environments and work with various stakeholders, such as fellow-employees, customers, and
government officials.

Sensitivity to foreign cultures and respect towards their value systems, customs, traditions, religions,
besides emotional maturity and empathy are some of the key attributes required to successfully
perform under cross-cultural situations.

Family attitude towards international assignments:

Support of family members, especially the spouse, is crucial for optimal performance of an employee at
job. This becomes extremely important for taking up an international assignment and performing
overseas.

The willingness of family varies significantly across their apprehensions regarding housing, safety,
childrens education, spouses career prospects, and also the fear of the unknown. Most studies suggest
that adjustment of the spouse is highly co-related to the adjustment and the performance of an
expatriate.

Most western cultures separate work from employees private lives and therefore western MNEs are
often reluctant to include the spouse either formally or informally in the expatriates selection process.
In certain countries, such as Australia, MNEs fear inclusion of spouse in the formal selection process
could evoke issues related to individual civil liberties.

Suitability of potential expatriates family for an overseas assignment may be appraised through
adaptability screening which evaluates how well the family is likely to stand up to the rigors and the
stress of overseas life.

Regulatory framework in host countries:

For international postings, it is essential to get work-permits for the selected candidates. MNEs need to
look into the restrictions imposed by host countries on citizens of certain nationalities. Host country
restrictions on relocation of families and freedom to take up any job by the spouse also restrict
employees decision to accept a foreign assignment.

For instance, free mobility among nationals in the European Union speeds up the relocation process for
citizens of member countries within the European Union. Certain Middle Eastern countries do not issue
a work permit to single women.

Language:

Working knowledge of foreign languages, especially those of the host country, offers an added
advantage while selecting managers for international assignments. It facilitates communication of
expatriates with the locals in a foreign country.

3. Managing Expatriates:

People working out of their home countries, also known as expatriates, form an integral part of a firms
international staffing strategy, especially for higher management positions. Beside identifying and
recruiting the right personnel with desired skills for international assignments, it is also extremely
important to provide them with a conducive environment to get their optimum output.

Expatriates also contribute significantly to international remittances. Worldwide remittances are


estimated to have exceeded US$318 billion in 2007, of which developing countries received US$240
million.

India had been the largest receiver of foreign remittance in absolute terms with US$27 billion, as shown
in Fig. 17.11, followed by China (US$25.7 billion), Mexico (US$25.0 billion), Philippines (US$170 billion),
France (US$12.5 billion), Spain (US$8.9 billion), Belgium (US$7.2 billion), Germany (US$70 Billion), UK
(US$70 billion), Romania (US$6.8 billion), Bangladesh (US$6.4 billion), and Pakistan (US$6.1 billion) in
2007.
However, due to the massive size of Indian and Chinese economies, the share of remittances in GDP was
only 2.8 and 0.9 per cent respectively in 2006.

The US has been the top remittance sending country with US$42.2 billions, followed by Saudi Arabia
(US$15.6 billion), Switzerland (US$13.8 billion), Germany (US$12.3 billion), and the Russian Federation
(US$11.4 billion) whereas the remittance sent by Japan, China, and India in 2006 were US$3.5 billion,
US$3.0 billion, and US$1.6 billion, respectively.

The principal concepts in managing personnel for foreign assignments, i.e., expatriate failure, expatriate
adjustment process, and repatriation are discussed in the ensuing sections.

Expatriate Failure:

Premature return of an expatriate before completion of a foreign assignment is termed as expatriate


failure. Expatriate failure represents faulty selection process, often compounded by ineffective
expatriate management policy.

Major reasons for contributing to expatriate failure include:

i. Inability to adjust in alien cultures

ii. Career apprehensions on repatriation

iii. Relocation anxieties

iv. High costs of living and income gaps

v. Problems related to lifestyle adjustments, such as uncomfortable living conditions

vi. Family problems, such as spouse dissatisfaction, childrens education, and safety concerns

vi. Health and medical concerns


vii. Adaptation problems to different management styles

Such failures have considerable implications on MNEs, both in terms of direct and indirect costs. Direct
costs include airfare of employees and their families, relocation expenses, salaries, and training costs.
Besides, there are considerable indirect costs involved, although difficult to quantify, both for the
employer and the employee.

Since many expatriate positions are required to interact with local government officials, customers and
other stakeholders, expatriate failure results in difficulty in dealing with host-government officials,
productivity losses, and often a demoralizing effect on the local staff.

Moreover, failure to perform and adjust in an overseas assignment leads to loss of self-esteem, self-
confidence, and ones reputation among colleagues which may also hamper the employees future
performance.

Expatriate adjustment process:

Expatriates and their families often find it difficult to adjust to a foreign environment. The series of
phases expatriates undergo while adjusting to a foreign culture is termed as expatriate adjustment
process. As there are considerable psychological upheavals in the adjustment process in a foreign
culture, it is also referred to as culture shock cycle.

Culture shock refers to the pronounced reactions to psychological disorientation that is experienced in
varying degrees when spending an extended period of time in a new foreign environment. Although the
duration and extent of culture shock may vary from individual to individual, depending upon the nature
of assignment and environmental differences.

The expatriate adjustment process may broadly be categorized under the following four heads, as
depicted in Fig. 17.12.

Initial euphoria:

In the initial stage of foreign assignments, also referred to as the honeymoon or tourist phase,
expatriates often experience upswing in their mood and a great deal of excitement in the new culture.
International travellers who visit foreign countries for a shorter duration have a luxury of experiencing
the new cultural excitement and remain only in the euphoric stage.

Cultural shock:

With the passage of time, the novelties of foreign assignment tend to dwindle, and the realities of every-
day life in the foreign country become increasingly challenging. Homesickness sets in; expatriates often
enter into a phase of disillusionment with heightened irritation, hostility, and mood downswing.

This leads to disruption in the established patterns of the expatriates behaviour. This phase is the most
critical in determining an expatriates success in a foreign assignment.

Adjustment:

If the cultural shock phase is handled carefully and successfully, the expatriate enters into the next
phase of coping with the new environment, known as adjustment phase. After the crisis of cultural
shock is over, the expatriate begins to develop a more positive attitude towards the new culture, and
begins to lead a more satisfying and rewarding life.

Re-entry:

Once an expatriate stays with family in a foreign environment over an extended period, she/he gets
adjusted to the culture and faces a reverse cultural shock on return. She/he may suffer from
maladjustment which may adversely affect her/his performance level and job satisfaction. She/he needs
to be supported by the company so as to minimize its detrimental impact.

Repatriation:

The process of returning home by an expatriate after completion of foreign assignment is known as
repatriation. The ability to attract potential expatriates also depends considerably on a firms effective
managing of the repatriation process.

The repatriation process may be divided as follows:

Preparation:

It refers to planning for future posting and gathering all information about the new assignments.
Companies generally provide a check-list of tasks to be completed before returning home, for instance
settling bills, closing bank-accounts, and other tasks associated with relocation of the expatriates family.

Physical relocation:

The actual movement of expatriates and their families along with their household belongings to the next
place of posting, usually the home country, is referred to as physical relocation. Comprehensive HR
policies to assist in relocation considerably reduce the hassles, disruptions, and associated
apprehensions, not only for expatriates but also for their families.

Transition:
Once the expatriate returns to his/her home country after completion of an overseas assignment,
provisional arrangements are to be made for accommodation and other household tasks, including
opening or reviving bank accounts, getting insurance and driving license, etc.

Re-adjustment:

It is the coping phase where expatriates face reverse cultural shock on their returning home. Loss of
career-growth and direction, fear of loss of income, status, and autonomy are some of the other
problems associated with re-entry into the home organization.

4. Training and Development:

Training refers to the process by which employees acquire skills, knowledge, and abilities to perform
both their current and future assignments in the organization. Training aims at altering behaviour,
attitude, knowledge, and skills of personnel so as to increase the performance of employees.

The need for imparting pre-departure training to spouse and children, besides the employee, is
increasingly recognized by MNEs. Pre-departure training is aimed at smooth transition of expatriates
and their families to a foreign location. It includes:

Cultural sensitization programmes:

Expatriates and their families need to be sensitized on cultural issues at the place of work so as to
facilitate their smooth transition to an alien culture (Fig. 17.13). It also helps expatriates deal with other
employees in the host country location and manage effectively. The type and extent of such training
varies, depending upon the country of assignment, duration of stay required, nature of posting, and the
training provider.

Preliminary visit:
Sending employees on a preliminary trip to the host country for orientation often provides a useful
insight into their suitability and interest in the overseas assignment. Such pre-departure visits constitute
a useful component of pre-departure training along with culture sensitization programmes.

It also facilitates during the initial adjustment process of expatriates and helps in reducing the costs
associated with expatriate failure.

Language training:

Although English is generally accepted as the language of global business, it is always desirable for
international managers to develop linguistic abilities in the foreign languages of the host country. Ability
to understand and speak local languages enhances expatriates effectiveness to deal with local
personnel and their ability to negotiate.

However, the degree of fluency of foreign language required also depends on the level and nature of the
foreign assignment and the need for interaction with local stakeholders, such as clients, government
officials, and other host country nationals.

Moreover, language skills on the country of operation also help the expatriates and their family
members develop social contacts with local communities and evolve their own social support networks.

MNEs from non-English speaking countries tend to use the language of the parent country for intra-firm
communications. With the geographical dispersion of its activities, often a common corporate language
is evolved which facilitates standardization of information and reporting systems.

As a result, fluency in corporate language also becomes a pre-requisite for effective performance at an
overseas assignment. Therefore, pre-departure training should include developing expatriates
proficiency both in the host country and corporate languages.

Practical training:

To assist expatriates and their families relocate overseas, the corporate HRM division often provides
information on practical aspects for adaptation to the new environment.

It includes brief working information on the host-country, such as its historical background and
geography, economic and legal environments, social and cultural etiquettes, political environment, and
the relationship between the two countries and religious beliefs and their impact on daily life and
current affairs.

Some MNEs also employ a relocation specialist to provide practical assistance to its expatriates such as
in finding accommodation and schools for children, etc. Skill development is a lifetime process that
enhances ones job performance.

Management development programmes (MDPs) are long-term efforts aimed at training and developing
the managers to harness their fullest potential at job. Type and duration of MDPs vary, depending upon
the nature of job, hierarchy level, career and organizational goals.

5. Performance Management:
Performance management is a comprehensive term that refers to the process that enables a firm to
evaluate the performance of its personnel against pre-defined parameters for their consistent
improvements so as to achieve organizational goals. The system used to formally assess and measure
employees work performance is termed as performance appraisal.

Evaluation of an employees performance is required for assessing employees contribution to achieve


organizational goals, facilitate administrative decisions related to compensation, promotion or transfer,
etc.

Determination of the evaluation criteria, the choice of the evaluators, and the delivery of timely and
culturally sensitive feedback constitute the principal challenges related to the performance evaluation of
expatriates.

In the international context, performance appraisal becomes more complex due to possible conflict
between the objectives of an MNEs headquarters and subsidiaries, non-comparability of information
between the subsidiaries, the volatility of international markets, and differences in levels of market
maturity.

Therefore, international HR managers need to reconcile the differences between the need for universal
appraisal standards and the specific objectives of the local subsidiaries, and to recognize that more time
may be needed to achieve results in markets, which enjoy little supporting infrastructure from the
parent company.

MNEs need to evolve systematic processes for evaluation of employees from different countries who
work in different environments. Developing consistent performance evaluation methods often conflicts
with the diverse cultural factors of the host countries.

For instance, it may be appropriate in a country with low-context culture like the US to precisely point
out an employees shortcomings directly whereas public criticism in high-context cultures, such as China,
Japan, and to some extent, India may prove counterproductive; in such cultures the opportunity to save
ones face is extremely important.

Praise is often given in groups in appraisal process in Japan, whereas it is given individually in the US.

Besides, the Western system of performance appraisal, especially in the US, emphasizes merit, fairness,
and short- term orientation whereas in Eastern cultures perceived loyalty to the superior or the
employer, ability to function in groups, attitude, seniority, etc., carry considerable weightage.

The criteria for assessing employees effectiveness in a foreign subsidiary may be totally different
compared to home country.

For instance, for long-term success of a firm in emerging markets like China and India, projecting a
positive company image, developing relationship with suppliers and the local government authorities is
much more important compared to growth in profitability and market share during the review period.

As indicated in Exhibit 17.1 an MNE applies home standards worldwide to evaluate employees
performance under the ethnocentric approach, whereas under the polycentric approach, performance
evaluation varies from country to country. Global corporations often monitor employees performance
based on the firms global objectives and goals.
6. Compensation:

Compensation refers to the financial remuneration that employees receive in exchange of their services
rendered to the organization. It includes wages, salaries, pay rise, and other monetary issues.

A good compensation system should be designed within the regulatory framework of the country of
operation of an MNE and should be able to attract and retain the best available talent. Besides, it should
be equitable among employees and motivate them to achieve high levels of performance.

Wages only become meaningful in relation to price, i.e., what can be bought with the money earned.
The relationship between wages and prices at different places becomes clearer by comparing global
standard products like the Big Mac burger, bread, or rice, as shown in Table 17.1. On a global average,
35 minutes of work buys a Big Mac, 22 minutes a kilo of bread, and 16 minutes a kilo of rice.

However, the duration of time required to work to buy one Big Mac or a kilo of bread or rice varies
significantly across places. It takes just 5 minutes of work to buy a kilo of bread in London whereas it
takes 16 minutes in New York and Tokyo, 22 minutes in Delhi, 49 minutes in Bangkok, and 53 minutes in
Mexico City.

Therefore, buying power needs to be taken into consideration while determining wages for employees
in different countries.

Culture also plays a significant role in determining compensation. In most Western companies, the
compensation is determined by the nature of job and individual performance whereas in Japan,
compensation is based on the traditional Oyabun- Kobun, or parent-child relationship, in which pay and
promotions are determined almost entirely by seniority.

Key components of international compensation systems:

Base salary:
Generally, an expatriates base salary is in the same range for a similar position in the home country but
in the international context, it often serves as a benchmark for other compensation elements. The base
salary may be paid either in home country currency or the local currency.

Foreign Service premium:

To accept a foreign assignment, an extra pay is often offered to expatriates as an inducement, known as
Foreign Service premium. Such extra premium is paid to compensate the expatriate for living in an
unfamiliar country isolated from friends and family.

Allowances:

It refers to the payments made to expatriates for extra costs required to be incurred for residing
overseas. Various types of allowances that form part of expatriate compensation package are discussed
below.

Hardship allowance:

It is paid when an expatriate is posted in a difficult location that has grossly deficient level of basic
amenities, such as healthcare, schools, transport, and safety compared to the expatriates home
country.

Quality of life index, as given in Fig. 17.14, provides a useful tool to carry out comparison between
various international locations. Zurich ranked as the worlds top city in terms of quality of life with a
score of 108.1 in 2007, followed by Germany, and Vancouver whereas Baghdad ranked at the last.

Cost of living allowance:


Cost of living allowance (COLA) is paid based on the differences in the price of food, transport, clothes,
household goods, entertainment, etc., between expatriates home country and place of overseas
posting. Since it is difficult to precisely determine the COLA, MNEs may make use of information
provided by specialist organizations.

Companies often make use of secondary information from the UN, World Bank, IMF, or private
publications, such as UBS, Mercer, or EIU surveys.

Cost of living computed on the basis of a weighted shopping basket of Western European consumer
habits containing 122 goods and services, including rent, considering an index of 100 for New York
reveals that London is the most expensive place in the world with an index of 120.2 as shown in Fig.
17.15, followed by Oslo (112.3) whereas Copenhagen has index value of 102.6, Geneva 96.0, Tokyo 94.4,
Paris 92.8, Sydney 82.2, Dubai 72.8, Moscow 71.2, Singapore 70.5, Mumbai 49.6, Nairobi 46.3, Shanghai
43.2, New Delhi 41.4, and Kuala Lumpur 31.0.

Housing allowance:

Expatriates are often provided company accommodation or housing allowances to maintain their living
standard at home country level.

Home leave allowances:

MNEs often provide paid leave and travel costs to expatriates and their families so as to enable them to
visit their home country usually once in a year as a part of their compensation package.

Education allowances:

Allowances for education of expatriates children are often an integral part of expatriates compensation
package so as to ensure that their children receive the same level of education as in the home country.
It may include enrolment fee, tuition fee, fee for language classes, costs of books and stationary,
transport, etc.

Relocation allowances:

MNEs often provide travel costs of expatriates and their families and cost of transporting household
belongings overseas. Transit accommodation in a company guest house or a hotel overseas is often
provided till final housing arrangements are made and the arrival of household goods. It may also
include some perquisites, such as car, club membership, domestic help, etc.

Assistance for tax equalization:

Tax equalization refers to an adjustment to expatriate pay to reflect tax rate in the home country.
Expatriates face two potential sources of income tax liabilities, both from host and home country.
Although most countries exempt their citizens on foreign income, it is also taxed in some countries, such
as the US, subject to certain exemptions.

Expatriates may have to pay income tax to both host and home country governments, unless there is a
reciprocal tax treaty between the two. Generally MNEs pay expatriates income tax in the host country
when a reciprocal tax treaty is not in force. Sometimes international firms also make up the difference
when the income tax rate in host country is higher which may otherwise reduce expatriates take home
pay.

Other benefits:

Benefits are usually monetary in nature, such as insurance, pensions, medical and educational benefits
and are monitored closely with compensation management. Such benefits may also include vacations
and special leaves, provisions for emergency leaves, and free air fare for the home country for
expatriates and their family in case of emergency.

Most firms ensure that expatriates receive the same level of benefits abroad as in their home country.
Sometimes it can be much costlier for the firms as such benefits may not be tax deductible for the firm
out of the country unlike in the home country.

Strategic approaches to international compensation:

An MNE may follow either home-, or host-country-based compensation systems or a hybrid of the two,
as summarized in Exhibit 17.3.
Home-country-based compensation system:

Under this system, expatriates base salary is linked to the salary structure of the home country. For
instance, salary of an Indian manager posted to the US would be based on the Indian rather than the US
level.
It is also known as balance sheet approach, which aims at maintaining the home country living
standard for expatriates and their families, besides providing some financial inducements to work
overseas. It is designed to equalize the purchasing power of expatriates at comparable position levels at
the host and the home country and to provide incentives to offset qualitative differences between the
job locations.

Host-country-based compensation system:

Expatriates base salary is linked to the pay structure in the host country. However, other allowances
and benefits are linked to the home country salary structure. It is also known as the going rate
approach, under which the base salary of an expatriate is linked to the prevailing salary structures in
the host country.

It is based on information obtained through compensation surveys of locals (HCNs), expatriates of same
nationality, or expatriates of all nationalities. However, the basic pay and benefits may be supplemented
by additional payments in low-pay countries.

Hybrid compensation system:

It combines the features of both the home- and host-country-based compensation approaches to create
a global workforce. It is based on the principle that all expatriates regardless of their country of origin
belong to one nationality.

Approaches to International Compensation

Compensation packages should attract, retain and motivate employees, while at the same time
balancing these costs with the expected returns for the organization, which is not an easy task.

Although different situational factors such as the attractiveness of the assignment destination and the
number of potential candidates require flexibility in compensation practices, some general guidelines
and methods exist. Broadly speaking, we can differentiate between two different approaches to
expatriate compensation: the balance sheet approach and the going rate approach (see Reiche, Harzing
& Garcia 2009).

The balance sheet approach is the most widely used approach by organizations and its main idea is to
maintain the expatriates standard of living throughout the assignment at the same level as it was in
his/her home country. In other words, it is about ensuring the same purchasing power, which helps to
maintain the home countrys lifestyle. Another important notion is that the balance sheet approach
implies matching the expatriates salary with home-country peers, not with the host-country colleagues.
On top of the home-country salary, host-country cost of living adjustments are usually made. As argued
by Sims and Schraeder (2005) in their recent review of expatriate compensation practices, such
adjustments are made using the no loss approach: expatriate compensation is adjusted upward for
higher costs of living, but is not adjusted downward if the cost of living in the host country is less than in
the home country.
Contrary to the balance sheet approach, there is a second approach, the going rate approach, which is
also known as the localization, destination or host country-based approach (Sims & Schraeder 2005).
As these names suggest, the core of this approach lies in linking the expatriate compensation to the
salary structure of the host country, taking into account local market rates and compensation levels of
local employees. The going rate method aims to treat the expatriate employee as a citizen of the host
country, encouraging a when in Rome, do as the Romans do mentality (Sims & Schraeder 2005).

Thus, the two approaches have different foci and hence also different advantages and disadvantages
(see the following table):

Apart from the stated differences in the two approaches and the related benefits and drawbacks, the
going rate approach seems to be more cost-effective than the balance sheet approach. In other words,
going local may reduce the host-country market adjustment costs, which may be especially tempting
for Western multinationals sending people to countries with lower salary levels. Despite these
advantages, the balance sheet approach continues to be the most widely used method. According to the
Brookfield Global Relocation Trends survey, 62% of respondents used a home-country approach (i.e.
balance sheet approach) to determine compensation for long-term assignments, only 6% a host-country
approach and 32% various combinations of home/host-country approaches. This suggests that
attraction/motivation of potential candidates for assignments is clearly more important than cost
saving.

However, no matter which compensation approach is used, the certain basic needs of expatriates
should be still met. Organizations should not forget about the daily life challenges faced by employees in
a foreign country, and hence there is a need for extra attention to security, medical care, housing,
education of children, spouse matters and home trips.

In the end, it is important to consider the concept of wholeness with regard to the goals of
compensation packages. The concept refers to the organizations desire to ensure that the expatriate
does not experience an overt gain or loss when all elements of the compensation package are combined
(Wentland, 2003). While finding a balance between the organizations and expatriates perceptions of
wholeness can sometimes be difficult, the intentions of keeping the employee as a whole by not
letting expatriates experience drastic lifestyle changes are paramount.
A Learning Organization and its Characteristics

A learning organization is the term given to an organization which facilitates the learning of its
employees so that the organization can continuously transforms itself. Learning organization develops
as a result of the pressures which are being faced by the organizations these days for enabling them to
remain competitive in the present day business environment. The learning organization concept was
coined through the work and research of Peter Senge and his colleagues. The learning organization
encourages to a more interconnected way of thinking. Such organization becomes more like a
community for which employees feel a commitment to. Employees work harder for the organization
since they are committed to it.

The concept of the learning organization is commonly hailed as panacea for organizational success in a
dynamic global economy. The concept of learning organization is increasingly relevant given the
increasing complexity and uncertainty of the organizational environment. In the words of Senge: The
rate at which organizations learn may become the only sustainable source of competitive advantage.

People have found the idea of a learning organization to be inspiring, yet difficult to implement. It
frequently involves deep change in the mind sets of employees as well as the culture of the organization
and the society. Such change does not occur overnight.

Definitions of learning organization

The following are some of the available definitions of the learning organization.

Peter Senge has defined the learning organization as the organization in which you
cannot not learn because learning is so insinuated into the fabric of life. According to him the
learning organizations are organizations where people continually expand their capacity to
create the results they truly desire, where new and expansive patterns of thinking are nurtured,
where collective aspiration is set free, and where people are continually learning to see the
whole together.

Learning organization can also be defined as an Organization with an ingrained philosophy for
anticipating, reacting and responding to change, complexity and uncertainty.

McGill and his colleagues had defined the learning organization as a company that can respond
to new information by altering the very programming by which information is processed and
evaluated.

A learning organization is one that is able to change its behaviours and mind-sets as a result of
experience. This may sound like an obvious statement, yet many organizations refuse to
acknowledge certain truths or facts and repeat dysfunctional behaviours over and again.

A learning organization is an organization that actively creates, captures, transfers, and


mobilizes knowledge to enable it to adapt to a changing environment.

An organization needs to learn to survive and prosper in changing and uncertain environment. It needs
its managers to make right decisions through skill and sound judgment. Successful decision-making
requires the organization to improve its capability of learning new behaviours over a period of time. This
learning in the organization is a fighting process in the face of swift pace of change. In this battle
managers are responsible for increasing the awareness and the ability of the organizational employees
to comprehend and manage the organization and its environment. In this way they can make decisions
that continuously secure the organization to reach its goals.

However, most managers know how to ensure the organizational learning, but fail to understand how to
make their organization a learning organization.

Individuals and groups learn, and when conditions and systems are well designed. In a learning
organization, their learning can be shared across the organization and incorporated into its practices,
beliefs, policies, structure and culture.

The role of a leader in the learning organization is that of a designer, teacher, and steward who can build
shared vision and challenge prevailing mental models. He is responsible for building in which the
employees are continually expanding their capabilities to shape their future that is, leaders are
responsible for learning.

The basic rationale for a learning organization is that in situations of rapid change only those that are
flexible, adaptive and productive will excel. For this to happen, it is argued, the organization needs to
discover how to tap employees commitment and capacity to learn at all levels

The learning organization aims to bring new ideas, debate issues, introduce innovative methods and
offer case studies to others.

Over time, the notion of learning organization as an idealized and apolitical end-state rather than as
a process, has increasingly gained uncritical acceptance.

The key ingredient of the learning organization is in how the organization processes its managerial
experiences. A learning organization learns from the experiences rather than being bound by its past
experiences. In the learning organization, the ability of the organization and its managers is not
measured by what it knows (that is the product of learning), but rather by how it learns the process
of learning. Management practices encourage, recognize, and reward with openness, systemic thinking,
creativity, a sense of efficacy, and empathy.

While all the employees have the capacity to learn, the structures in which they have to function are
often not conducive to reflection and engagement. Furthermore, the employees may lack the tools and
guiding ideas to make sense of the situations they face. Hence the learning organization which is always
aspiring for success in its operation is to create a future that requires a fundamental shift of mind among
its employees.

The dimension that distinguishes a learning organization from more traditional organizations is the
mastery of certain basic disciplines or component technologies. The five main characteristics (Fig 1)
that Peter Senge had identified are said to be converging to innovate a learning organization. These are
(i) Systems thinking, (ii) Personal mastery, (iii) Mental models, (iv) Building shared vision, and (v) Team
learning.
Fig 1 Five characteristics of a learning organization

Systems thinking

The idea of the learning organization developed from a body of work called systems thinking. This is a
conceptual framework that allows people to study businesses as bounded objects. Learning organization
uses this method of thinking when assessing the organization and has information systems that measure
the performance of the organization as a whole and of its various components. Systems thinking states
that all the characteristics must be apparent at once in an organization for it to be a learning
organization. If some of these characteristics are missing then the organization falls short of its goal.
However some believes that the characteristics of a learning organization are factors that are gradually
acquired, rather than developed simultaneously. Systems thinking is the conceptual cornerstone of a
learning organization. It is the discipline that integrates all the employees of the organization, fusing
them into a coherent body of theory and practice. Systems thinking ability to comprehend and address
the whole and to examine the interrelationship between the parts provides for both the incentive and
the means to integrate various disciplines in the organization.

Personal mastery

Organizations learn only through individuals who learn. Individual learning does not guarantee
organizational learning. But without it no organizational learning occurs. Personal mastery is the
discipline of continually clarifying and deepening employees personal vision, of focusing their energies,
of developing patience, and of seeing reality objectively. It goes beyond competence and skills, although
it involves them.

The commitment by an individual to the process of learning is known as personal mastery. There is a
competitive advantage for the organization over other competiting organizations if the employees of
the organization can learn more quickly. Individual learning is acquired through employees training,
development and continuous self-improvement, however learning cannot be forced upon an individual
who is not receptive to learning. Research shows that most learning in the workplace is incidental,
rather than the product of formal training. Therefore it is important to develop a culture in the
organization where personal mastery is practiced in daily life. A learning organization has been
described as the sum of individual learning, but there must be mechanisms for individual learning to be
transferred into organizational learning.

People with a high level of personal mastery live in a continual learning mode. They never arrive.
Sometimes, language, such as the term personal mastery creates a misleading sense of definiteness, of
black and white. But personal mastery is not something you possess. It is a process. It is a lifelong
discipline. People with a high level of personal mastery are acutely aware of their ignorance, their
incompetence, and their growth areas. They are always deeply self-confident.

Mental models

Mental models are deeply ingrained assumptions, generalizations, or even pictures and images that
influence how we understand the world and how we take action.

The assumptions held by individuals and organizations are called mental models. To become a learning
organization, these models must be challenged. Individuals tend to espouse theories, which are what
they intend to follow, and theories-in-use, which are what they actually do. Similarly, organizations tend
to have memories which preserve certain behaviours, norms and values. In creating a learning
environment it is important to replace confrontational attitudes with an open culture that promotes
inquiry and trust. To achieve this, the learning organization needs mechanisms for locating and assessing
organizational theories of action. Unwanted values need to be discarded by the process called
unlearning.

The discipline of mental models starts with turning the mirror inward; learning to unearth our internal
pictures of the world, to bring them to the surface and hold them rigorously to scrutiny. It also includes
the ability to carry on learningful conversations that balance inquiry and advocacy, where people
expose their own thinking effectively and make that thinking open to the influence of others.

If the organization is to develop a capacity to work with mental models then it is necessary for the
employees to learn new skills and develop new orientations. For this there need to be institutional
changes in order to foster such change. There need to have openness in the organization. It also
involved seeking to distribute organizational responsibly far more widely while retaining coordination
and control.

Building shared vision

If any one idea about leadership that has inspired organizations for thousands of years, is the capacity to
hold a share picture of the future the organizations seek to create. Such a vision has the power to be
uplifting and to encourage experimentation and innovation. Crucially, it is argued, it can also foster a
sense of the long-term vision, something that is fundamental

The development of a shared vision is important in motivating the employees to learn, as it creates a
common identity that provides focus and energy for learning. The most successful visions normally build
on the individual visions of the employees at all levels of the organization. The creation of a shared
vision can be hindered by traditional structures where the organizational vision is imposed from
above. Therefore, a learning organization tends to have flat, decentralized organizational structure. The
shared vision is often to succeed against a competitor for which there can be transitory goals. However
there should also be long term goals that are intrinsic within the organization.

When there is a genuine vision (as opposed to the familiar vision statement), employees excel and
learn, not because they are told to, but because they want to. But many leaders have personal visions
that never get translated into shared visions that galvanize the organization. What has been lacking is a
discipline for translating vision into shared vision not a cookbook but a set of principles and guiding
practices.

The practice of shared vision involves the skills of unearthing shared pictures of the future that foster
genuine commitment and enrolment rather than compliance. In mastering this discipline, management
is to learn the counter-productiveness of trying to dictate a vision, no matter how heartfelt it is.

Visions spread because of a reinforcing process. Increased clarity, enthusiasm and commitment rub off
on others in the organization. As people talk, the vision grows clearer. As it gets clearer, enthusiasm for
its benefits grow. There are limits to growth in this respect, but developing the sorts of mental models
can significantly improve matters. Where the organizations can transcend linear and grasp system
thinking, there is the possibility of bringing vision to fruition.

Team learning

The accumulation of individual learning constitutes team learning. The benefit of team or shared
learning is that the employees grow more quickly and the problem solving capacity of the organization is
improved through better access to knowledge and expertise. A learning organization has structures that
facilitate team learning with features such as boundary crossing and openness. Team learning requires
individuals to engage in dialogue and discussion. Therefore team members must develop open
communication, shared meaning, and shared understanding. A learning organization typically has
excellent knowledge management structures, allowing creation, acquisition, dissemination, and
implementation of this knowledge in the organization.

Team learning is viewed as the process of aligning and developing the capacities of a team to create the
results its members truly desire. It builds on personal mastery and shared vision but these are not
enough. Employees need to be able to act together. When teams learn together then not only there are
good results for the organization but the team members also grow more rapidly which could not have
happened otherwise.

The discipline of team learning starts with dialogue, the capacity of members of a team to suspend
assumptions and enter into a genuine thinking together.

The notion of dialogue amongst team members helps them to become open to the flow of a larger
intelligence. When the dialogue is joined with systems thinking, there is the possibility of creating a
language more suited for dealing with complexity, and of focusing on deep-seated structural issues and
forces rather than being diverted by questions of personality and leadership style.

Benefits of a learning organization

A learning organization does not rely on passive or ad hoc process in the hope that organizational
learning will take place through serendipity or as a by-product of normal work. A learning organization
actively promotes, facilitates, and rewards collective learning. The main benefits of a learning
organization are as follows.

Maintaining levels of innovation and remaining competitive

Being better placed to respond to external pressures

Having the knowledge to better link resources to customer needs

Improving quality of outputs at all the levels

Improving the corporate image of the organization by becoming more people oriented

Increasing the pace of change within the organization

Organizational learning

Organizational learning is defined as occurring under two conditions. First, it occurs when an
organizational reached the goals it was trying to achieve. In that case, there is a match between
the proposed actions and the outcome. Second, learning occurs when we identify the mismatch
between intentions and outcome and correct it. In this case a mismatch is turned into a match.
These are illustrated in figure 4.
Single-Loop Learning

Following the rules

Single and double-loop learning-concepts have been developed by Chris Argyris and Donald Schn.
These theories are based upon a theory of action perspective designed by Argyris.

Single-loop learning (illustrated in figure 1 below) is one kind of organizational learning process. In
single-loop learning, people, organizations or groups modify their actions according to the difference
between expected and reached outcomes. In other words, when something goes wrong or does not
happen like we would like, most of us would consider how the situation could be fixed. Single-loop
learning can also be described like to be situation in which we observe our present situation and face
problems, errors, inconsistencies or impractical habits. After that we adapt our own behavior and
actions to mitigate and improve the situation accordingly.
There are few problems with single-loop learning. The biggest problem with it is that acting like that we
only remove the symptoms, while root causes are still remaining. That is not a good thing because we
will have new problems in the future. Instead of that we should examine, and find out the root causes
and also challenge our underlying beliefs and assumptions. By using only single-loop learning we end up
making only small fixes and adjustments. That is the main reason why we also need double- and triple-
loop learning. These two topics will be discussed later on this blog.

The other problem with single-loop learning is that it assumes problems and their solutions to be close
to each other in time and space. However, this is not true generally. In this kind of learning, individuals
or groups are primarily observing their own actions and methods. This will lead to small changes in
specific practices, behaviors or methods which are based on what has or has not been working before.

In summary it can be said that single-loop learning is operative level and it answers to the question Are
we doing things right?

Double-loop learning

Changing the rules

The previous post was all about single-loop learning. Now it is time to consider double-loop learning. As
I have described earlier, double-loop learning is a part of a theory of action designed by Chris Argyris.
In single-loop learning characterized by the fact that we changed our action or behavior to fix or avoid
mistakes. Whereas in double-loop learning we also correct or change the underlying causes behind the
problematic action.

There could me many different underlying causes. Underlying causes may be, for example,
organizational norms, policies, ways to work or individuals motives, assumptions or even informal and
ingrained practices which prevent inquiry on these causes.

In double-loop learning (illustrated in figure 2 below) we are forced to think about our actions in the
framework of our operating assumptions. That is an important thing because we need to start thinking
and analyzing our own processes. We should ask ourselves what is going on here? and what are the
patterns?. That information is needed if we want to understand the pattern. Double-loop learning will
lead to deepen understanding of our assumptions and better decision-making in our everyday
operations. We also need to notice that double-loop learning leads to organizational learning. That is
very important because organizational learning is one of the most important factors nowadays. Without
organizational learning we have serious troubles.

Basically, double-loop learning requires three skills:

1. self-awareness

2. honesty or candor

3. taking responsibility

At first we need self-awareness to identify what is often unconscious or habitual. After that we need
honesty or candor to recognize mistakes and discuss with other people to find out and establish root-
causes. Finally we need to take responsibility for how we need to change our action or methods and
how we can learn from the incident.Chris Argyris himself is described the process of single and double-
loop learning in the context of organizational learning as follows:

When the error detected and corrected permits the organization to carry on its present policies or
achieve its presents objectives, then that error-and-correction process is single-loop learning. Single-
loop learning is like a thermostat that learns when it is too hot or too cold and turns the heat on or off.
The thermostat can perform this task because it can receive information (the temperature of the room)
and take corrective action. Double-loop learning occurs when error is detected and corrected in ways
that involve the modification of an organizations underlying norms, policies and objectives.

In summary, by using double-loop learning we examine the underlying assumptions behind the actions
and behavior and learn from those mistakes and incorrect methods. By doing this we are able to remove
the root causes that makes us to behave or action in a certain, poor or costly way. While single-loop
learning was more like an operative level, double-loop learning is rather a tactical level. Double-loop
learning should answer to question Are we doing the right things?.

Triple-loop learning

Learning about learning

The origin of the triple-loop learning is not well-known. It is clear that triple-loop learning is inspired by
Argyris and Schn (developers of single- and double-loop learning) but the term does not appear
explicitly in their published works. In triple-loop learning (illustrated in figure 3 below) we learn how to
learn by reflecting how we learned in the first place. In this kind of learning organizations, individuals or
groups should reflect on how they think about rules and not only think that rules should be changed.
Triple-loop learning helps us to understand more about ourselves or our organization. One defining for
triple-loop learning is double-loop learning about double-loop learning.

All in all it can be said that triple-loop learning encompasses both single- and double-loop learning and
much more than that. This means that triple-loop learning focuses on the ability to utilize both single-
and double-loop learning. It challenges existing learning framework as well as models and assumptions.
The learning goes be beyond insight and patterns to context. With triple-loop learning we get to known
new ways of learning and new commitments.

This kind of learning challenges us to understand the overall picture and how the problems and
solutions are linked together even when separated widely by time and place. It is also important to
notice that with triple-loop learning we should able to understand how our previous actions created the
conditions that led us to our current situation and problems.
Organizations can benefit from triple-loop learning in many ways:

The relationship between organizational structure and behavior will change fundamentally
because the organization learns how to learn

Organization learn new ways to comprehend and change its purpose

Organization get a better view of understanding of how to respond to its environment

Get a deeper comprehension of why our organizations chose to do things we do

In summary, while single-loop learning all about correcting errors without questioning underlying
assumptions and double-loop learning detects errors, questions underlying assumptions behind the
actions and behavior and also learn from these mistakes, triple-loop learning is operating at a higher
level; it develops the organizations ability to learn about learning. Triple-loop learning should answer to
question how do we decide what is right?

e-HRM & HRIS

Organisations have in recent years heavily invested in information and communication technology (ICT)
for the support of different business functions. The human resources (HR) functions of organisations are
no exception. The combination of the need to work more effectively and efficiently on the one hand and
the possibilities of current ICT on the other, has resulted in the rapid development of electronic HR
systems and applications .

Although a variety of definitions exist for e-HRM, ranging from those based on system functionality to
those that see it as an overall approach to HR management, for the purposes of this paper, e-HRM will
be defined as the administrative support of the HR function in organizations by using information
technologies, aiming at creating value within and across organisations of the targeted employees and
management . Strohmeier (2007) defines e-HRM as the application of information technology for
networking and supporting at least two individual or collective actors in their shared performing of HRM
activities. He notes that in e-HRM, technology serves both as a medium, connecting spatially segregated
actors, and as a tool for task fulfilment, as it supports actors by substituting for them in executing HRM
activities.

There is a fundamental difference between HRIS (human resource information system) and e-HRM lies
in the fact that HRIS are directed towards the HR department itself . Users of these systems are mainly
HR staff. These types of systems aims to improve the processes within the HR department itself
(Alshibly, 2011). With e-HR, the target group is not the HR staff but people outside this department: the
employees and management. HRM services are being offered through an intranet for use by employees.
The difference between HRIS and eHRM can be identified as the switch from the automation of HR
services towards technological support of information on HR services. e-HR is the technical unlocking of
HRIS for all employees of an organization.

The literature on e-HRM suggests that, overall, the four goals in introducing e-HRM are reducing
administrative costs, improving HR services, speeding response times, and improving decision making,
thus helping HRM to become more strategic, flexible, cost-efficient, and customer-oriented. The e-HRM
technology supports the HR activities to comply with the HR needs of the organisation through web-
technology based channels. The e-HRM technology provides a portal which enables managers,
employees and HR professionals to view extracts or other information which is necessary for managing
the HR of the organization. e-HRM and its self-service characteristics can be the cheapest and fastest
way to provide specific HR activities. With e-HRM, managers can access relevant information and data,
conduct analyses, make decisions and communicate with others and they can do this with a click of the
mouse.

Academics and practitioners alike consider e-HRM applications to be a valuable tool. However,
researchers have not demonstrated a consistent relationship between information systems (IS)
investment and organizational performance. In order for e-HRM applications to be used effectively in an
organization, we need dependable ways to measure the success and/or effectiveness of the e-HRM
system. While a considerable amount of research has been conducted on IS success models, little
research has been carried out to address the conceptualization and measurement of e-HRM success
within organizations. Whether or not traditional IS success models can be extended to assessing e-HRM
success is rarely addressed. There is a need to investigate whether traditional information systems
success models can be extended to investigating e-HRM.