INTERNATIONAL HRM:

Priyanka

Adhangale Deepika Bhopale Shraddha Gawade Kavita Marathe Arpita Mathur Neha Khandelwal

01 16 28 51 53 43

 Definition:

If the MNC is simply exporting its products, with only a few small offices in foreign locations, then the task of the international HR manager is relatively simple. the approach to HRM must be sufficiently flexible to allow for significant differences in the type of HR policies and practices that are most effective in different business and cultural settings. This problem of balancing integration and differentiation have long been acknowledged as common dilemmas facing HR and other functional managers in global corporations.

Specifically compared with domestic HRM, IHRM (I) encompasses more functions, (2) has more heterogeneous functions, (3) involves constantly changing perspectives, (4) requires more involvement in employees personal lives, (5) is influenced by more external sources, and (6) involves a greater level of risk than typical domestic HRM. IHRM requires a much broader perspective on even the most common HR activities. International HR managers must deal with varied issues

Even when dealing with one particular HR function area such as compensation, the international HR manager is faced with a great variety of national and international pay issues. In the case of fringe benefits provided to host company employees, some interesting complications might arise. A final aspect of the broader scope of IHRM is that the HQ-based manager deals with employee groups that have different cultural backgrounds. Although such issues are important for the HQ-based manager, they are also relevant to the HR manager located in a subsidiary.

The HQ-based manager may have to set equal employment opportunity (EEO) policies that meet the legal requirements of both the home country and a number of host countries. Globalization of business has probably touched the HR manager more severely than any other functional head Just as the success of domestic business depends on its human resources, so is the case with international business. The type of people, willingness with which they work and the commitment they exhibit towards the organization determine the competitive edge of an MNC in the international market.

Types of employees

HR activities

HRM

Countries of operation

Human Resource Management (HRM) involves all management decisions and practices that directly affect the people who work for the organization. Human Resources the people who work for the organization.
Human represents the dimension of HRM which relates to the soft aspects such as commitment of employees through participation and the most important assets being the employees. Resource represents the hard aspects such as the strategy link of HRM and the importance of efficient utilization of employees. Management represents the role of HRM as part of management that implies that its not only an administrative function that carries out the formulated policies but also a managerial function that contributes to strategy formulation.

Exporting:
Licensing: Franchising: Foreign direct investment:

Perspective influences practices.

major factors that form perspective for international HRM and in turn influence HRM practices are scanned as,

The

Cultural Factors. Economical Factors. Labour cost .

Cultural factors:

Culture means shared beliefs, values, norms, and moral by people. Organizational culture means a pervasive underlying set of beliefs, assumptions, values, shared feelings and perceptions, which influence the behavior of people in the organization. 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.

The research 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 socities differ on four primary dimensions which he called: Power distance (PDI), Uncertainty avoidance (UAI), Individuality (INV) Masculinity (MASC).

Power distance ( PDI )

By power distance means the extent to which the members of a society accept that power in institutions and organizations is and should be distributed equally.

Uncertainty Avoidance( UAI )

Uncertainty avoidance means the creation of set of rules and structures to eliminate ambiguity in organizations and support those beliefs that are promising for certainty and conformity. For e.g. while at work place, the Indians, Germans, and the French feel much a 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

Individualism means the degree of preference of individuals expected to look after themselves and their immediate families.

Masculinity:

It means the extend to which the society values assertiveness (masculinity) and caring (femininity). 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.

HR practices are also influenced by the 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 towards improving labour performance. Labour may get remuneration as per performance i.e. pay-for- performance.

LABOUR RELATIONS (Industrial relations) FACTORS:

It is relationship between employees, employers and the government that vary from one country to another country and have an enormous bearing on affecting HR practices.

ECONOMIC CONDITIONS:

Like cultural differences, there abound economic differences among nations/countries. Cultural differences, there abound economic differences among nations/countries.

Differences in economic conditions or systems cause inter-country differences in HR practices.

From this we can see wide inter-country differences in culture, economic systems, and 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.

a) Types of employees
b) Human resource activities c) Nation/country categories where firms expand and operate

Several factors differentiate IHRM from domestic HRM. The main characteristics of IHRM are: More HR activities Need for a broader perspective More involvement Changes in emphasis Risk exposure More external influences.

More HR activities

Much broader than managing domestic HR activities. Issues connected with international taxation, international orientation and relocation, administrative services for expatriates, host government regulations, and language translation services. Much broader perspective on even the most common HR activities. For example, while dealing with pay issues, the corporate HR manager must co-ordinate pay systems in different countries with different currencies that may change in relative value to one another over time.

Need for a broader perspective

More involvement in employee personal lives A greater degree of involvement

International Human Resource Service of the above programmes and provides service for the parent-country national such as handling their banking, investments, home rental while on assignment, co-ordinating home visits, and final repatriation.

Risk Exposure Risk Exposure is high in domestic HRM. In IHRM this risk exists and in addition there are other hazards that are unique and more threatening.

 Members

of a group or society share a distinct way of life that are transmitted over time in a gradual yet dynamic process. - A person is not born with a given culture.

An important characteristic of culture is one is not always conscious of its effect on values, attitudes and behaviors. - E.g. Business person travelling abroad demonstrate differences.

 They

experience culture shock-a phenomenon experienced by people who move across cultures.
-It can lead to negative feelings about the host country and a longing to return home. -It can cause psychological disorientation due to misunderstanding.

Patterns of international competition vary widely from one industry to another.

At one end is the Multi domestic industry

- One in which competition in each country is essentionally independent of competition in other countries like retailing, distribution and insurance.

At the other end is the Global industry

- which is not merely the collection of domestic industries but a series of linked domestic industries in which the rivals compete against each other on a truly worldwide basis.

The changes required to truly internationalise the HR function -have more to do with states of mind and mindsets than with behaviors.

If senior management does not have strong international orientation

- the importance of international operations may be underemphasized in terms of corporate goals and objectives.

 In

such situations, managers may tend to focus on domestic issues and minimize differences.

- It can cause failure to recognise differences in managing human resources in foreign environment

The challenge for the HR manager is to work with top management in fostering the desired Global mindset.

pervasive but often ignored factor which influences the behavior of multinationals and resultant HR practices.
many firms, a small home market is one of the major motives for going international.

For

 An

awareness of cultural differences is essential for the HR manager at corporate headquarters as well as in the host location. is recognised that culturally insensitive attitudes and behaviors stemming from misguided beliefs are inappropriate - which cause international business failure.

It

Basic Steps In International HRM

HRP

Recruitment and Selection Training and Development Performance Management

O R G A N I S A T I O N A L

Remuneration

Repatriation

Employee Relations

E F F E C T I V E N E S S

 Identifying

top Managements potential early. - critical success factors for future International managers.

Providing Planning

developmental opportunities.

The Strategic Management of Human Resources Human Resource Planning

for Organizations, Jobs, and People

-Tracking and maintaining commitment to individuals -Tying strategic business planning to HRP and viceversa.

Dealing with multiple business units while attempting to achieve globally and regionally focused strategies. International HR manager must proceed with the - job of hiring the right number of people of the right type. - select people with skills and who can mix with organizations culture.

All key management positions are held by parent country nationals. This strategy is appropriate during the early phases of international business. This practice was wide spread at one time. In many Japanese and south Korean firms today, such as Toyota, Samsung etc, key position in international operations are still held by the home country nationals. Firm such as Procter & gamble, Phillips etc. followed the ethnocentric approach.

The polycentric staffing requires host country nationals to manage subsidiaries, while parent country nationals occupy key positions at corporate headquarters. Preference for home country citizens for key positions does not fit in to pattern, unless government interventions dictated selection process. In addition, many countries exert real and subtle pressure to staff the upper management ranks with nationals.

This staffing philosophy seeks the best people for key jobs through out organization, regardless of nationality. Selecting the best person for the job irrespective of nationality is most consistent with the underlying philosophy of a global corporation. E.g.. Colgate Palmolive is an example of a company which follows geocentric approach.

An employee who is working and temporarily residing in a foreign country. Expatriates are PCNs from the parent country operations, Third country nationals are transferred either to Head Quarters or to another subsidiary, and Head country nationals are transferred into the parent country. Expatriate play a major role in international business.

Premature return to their home country. Popularly called expatriate failure, the subject has assumed considerable importance in their literature non-international business. Expatriate failure results in considerable losses to MNCs.

Determining need for an Expatriate

Crisis & Adjustment

Re-assignment Abroad

OR

Departure

Post-arrival Orientation & Training

Repatriation & Adjustment

OR
The selection process Pre-assignment training Crisis and failure

US FIRMS - Inability of spouse to adjust

JAPANESE FIRMS - Inability to cope with larger International responsibilities

- Managers inability to adjust

- Difficulties with the environment

- Other family reasons

- Personal or emotional problems

- Inability to cope with larger international responsibilities.

- Lack of technical competence

Improving selection procedure to eliminate inappropriate candidates. The first step in this direction is to delineate the selection criteria for selecting expatriates.

Technical Ability

Cross-cultural suitability

Family Requirements

Selection Decision

Country- cultural Requirements

Language

MNC Requirements

After selection, the next step in IHRM is to train and develop new hires. An expatriate needs pre-departure training before leaving for foreign assignment. Training is one of the ways of reducing expatriate failure rate. An expatriate needs culture training, language training, and practical training.

Seeks to foster an appreciation for the host countrys culture. The host countrys culture will help the manager empathize with the culture, which will enhance his or her effectiveness in interacting with hostcountry citizens. An expatriate should receive training in the host countrys culture, history, politics, economy, religion, and social and business practices.

Cultural training includes counseling on return to home base to prevent reverse culture shock. Firms which have recognized the importance of cultural training are Mafatlal, O.P Jindal Group, Reckitt & Coleman India, and Ranbaxy.

Important part of training. Desirable component of a pre-departure programme. Those who can speak only English are at a distinct disadvantage when doing business in non-English speaking countries like China. The willingness to communicate in the hostcountry language helps to build good rapport with local employees and improve the expatriates effectiveness.

Helps the expatriate manager and family feel at home, in the host-country. Where an expatriate community exists, firms often to integrate the new expatriate family quickly into that group. The expatriate community can be a useful source of support and information, and can help the family to adapt to an alien culture.

MNCs use management development as a strategic tool pursuing a multinational strategy. Management development programmes help build corporate culture by encouraging new managers to socialize and imbibe the values and norms of the firm. In-house training programmes and intense interaction during off-site training fosters the esprit-de-corps, shared experiences, informal networks, as well as competencies.

These training courses often include songs, picnics and sporting events that promote feelings of togetherness. This philosophy is effective for both giving a shape to a common culture in the company and co-ordinating the firms globally dispersed operations.

Challenging job
Recruitment, selection ,training ,etc preassignment issues, while it post-assignment issues Enables an MNC to facilitate continuous improvement of individuals, subsidiary units, and corporate performance, against clearly-defined, pre-set goals and targets Comprehensive in nature-multi functional

MNC has its own specific expectations for each of its foreign subsidiary in terms of market performance and contribution to total profits and competitiveness.
A subsidiarys performance needs to be assessed in terms of its fulfillment of its headquarters expectations. However, while evaluating a subsidiarys performance, the constraints within which it functions in a host country need to be taken note of. One such example is:

Sales in Peru may be blooming, but the headquarters management was unaware that Peruvian accounting rules, sales on consignment are counted as firm sales. How should the headquarters are accounting system handle these sales relative to sales from other subsidiaries that do not consider sales on consignment as firm sales? Thus the data obtained from subsidiaries may be neither interpretable nor reliable

 Assessment of subsidiarys performance is

complicated -- physical distance involved, timezone differences, and the frequency of contacts between the corporate head-office staff and the subsidiary management, and the cost of the reporting system.

Developments in communications - Internet, fax machines, teleconferencing systems, and e-mails do not substitute -- face-to-face contacts subsidiary managers and corporate staff.

Designing of attractive remuneration packages for the expatriates. Any expatriate remuneration package needs to be designed to achieve the following objectives:

Attract employees - international assignments. 2) Movement of expatriates from the home country - subsidiaries subsidiaries-home country. 3) Provide a reasonable relationship - pay levels of employees at the headquarters, domestic affiliates, and foreign subsidiaries. 4) Cost-effective - reducing unnecessary expenses.
1)

Discrepancies in pay between parent, host and third-country nationals.

The need to vary expatriate compensation, depending on the stage of life cycle of the expatriates family (e.g. young children, children in college, etc). Remuneration issues related to re-entry into the parent-country organization. Remuneration issues to deal adequately with new waves of change in the international business environment.

Expat compensation depends on internal as well as external factors -- Internal factor include goal orientation, capacity to pay, labour relations, subsidiary role -- Parent nationality, local culture, industry type and the like constitute external factors.
Any expatriate remuneration package should seek to equalize the cost of living at home and living abroad.

Components of Expat Compensation

SALARY T A X E S

Expat Compensation

B E N E F I T

INCENTIVES

ALLOWANCES

Different term Cash compensation which serves as a benchmark

Domestic 1) bonuses 2) benefits. Expatriates1) allowances 2) bonus and benefits. Currency Foundation block

Regular employee major element of remuneration

Expatriate similar or even larger portion of remuneration

Benefit programme- whether home or host country Whether termination affects employee benefits entitlement? Social security benefits- home or host country

Which country should pay the benefits?

Expensive feature of the expatriate remuneration package. Eg. cost of living difference in payment in home country and overseas assignment Same standard of living needs to be provided. Spouse assistance- unique features: Guards again the income lost by an expatriates spouse Some us firms provide the spouse with employment opportunity.

1) 2)

Incentive programe- keeping expatriate motivated.

Dropped- ongoing premium Adopted- one time lumpsum premium.

3 advantages of one time lumpsum premium:

1) Paid only once -- on acceptance of overseas assignment -motivational value. 2) Cost to company are less -- one time payment. 3) Separate payment -- different from regular payment -used for savings and spendings.

The final component of the expatriates remuneration relates to taxes. MNCs generally select one of the following approaches to handle international taxation:Tax equalisation Tax protection

Remuneration packages to fit with the specific situation. For e.g. senior level managers in Japan are paid four times more than their junior staff members . In US it is much higher and in Europe it is much lower. Firms generally follow a number of approaches:

1.) Balance- sheet approach - The basic objective of maintaining the home-country living standard, plus offer some financial inducement.

2.) Localisation - expatriate is paid a salary which is paid to individuals early in their careers and who are being given long term overseas assignment.

3.)Lump-sum method - giving the expatriate a predetermined pay and letting the individual decide about how to spend it. 4.)Cafeteria approach - entails giving expatriates a series of options and then letting them decide how to spend the available funds.

5.)Regional system - MNC sets a remuneration system for all expatriates who are assigned to a particular region. Thus, everyone going to one region will follow one same system

The activity of bringing the expatriates to the home country.

Needs careful handling, which has been realized lately. Re-entry into the home country presents new challenges as the repatriate (returning person) copes with re-entry shock, or reverse culture shock. Repatriation, not the final phase in the expatriation process. But MNCs should handle their repatriation programmes well to attract future expatriates

PREPARATION

PHYSICAL RELOCATION

REPATRIATION PROCESS

TRANSITION

RE-ADJUSTMENT

It involves developing plans for the future and gathering information about the new position. The firm may provide a checklist of items to be considered before the return to home (e.g. closure of bank accounts and settling bills) or a thorough preparation of the employee and his or her family for the transfer to home.

 Refers

to saying goodbye to colleagues and friends, and travelling to the next posting, usually the home country.
relocation assistance reduces the amount of uncertainty, stress, and disruptions experienced by the repatriate and the family.

Personalized

 settling

into temporary accommodation, where necessary, making arrangements for housing and schooling, and carrying out other administrative tasks such as renewing driving license, and opening bank account.

Involves coping with reverse culture shock and career demands.

The most difficult step. The re-entry adjustment is a tough task because of multiple factors.

Multiple factors- anxiety experienced by the expatriate when he or she returns home, - the apprehension being accentuated by the uncertainty about the placement in the firm, - career prospects, and a sense of isolation; feeling of devaluating the international experience; coping with new role demands; probable loss of status and pay.

The last component of IHRM is labour or employee relations.

Key issues in International labour relations:Who should handle labour relations?

What should be the Union Tactics?

The headquarters or the subsidiary plant in the concerned country? Due to national differences in economics, political, and legal systems produce different labour-relations systems across countries -- delegate the management of labour relations to their foreign subsidiaries. The decentralization does not keep the corporate office away from exercising some co-ordination over labourrelations strategy. The corporate office becomes involved in or overseas labour agreements made by foreign subsidiaries because these agreements may affect the international plans of the firm and/or create precedents for negotiations in other countries.

The involvement of the MNC headquarters in host-country labour relations is influenced by several factors :-

1) the labour- relations function is centralized and is coordinated by headquarters when there is high degree of inter-subsidiary production integration. 2) the nationality of ownership of the subsidiary has an impact on who handles employee relations.

Unions use several tactics to deal with international business. The most common union tactic is strike. The bargaining power of a union may be threatened or weakened by the financial resources of a multinational. An MNC has the ability to move the production facilities to other locations from the place of industrial dispute. The second tactic used by labour unions is to form International Trade Secretariats (ITSs). Next tactic sought by the labour unions is lobbying for restrictive national legislations. Finally, labour unions seek intervention from the International Labour Organization (ILO), the United Nations Conference on Trade and Development (UNCTAD), the European Union (EU), and Organization for Economic Cooperation and Development (OECD).