The field of international HRM
In today’s society there is a growing influence of internationalisation on organisations, both large and small. There are increasing numbers of internationally operating organisations and internationally operating employees. Therefore the subject of International Human Resource Management (IHRM) is becoming evermore critical for more and more organisations.
The field of IHRM can be look upon, as “each country possesses certain characteristics physical, demographic, and behavioural norms that constitute its national identity and that may affect a company’s, methods of doing business in that country”. (Daniels and Radebaugh, 1995).
In completing this essay I will endeavour to examine the main factors that differentiate International HRM from Domestic HRM and explain the variables that moderate these differences.
Factors that differentiate International HRM form Domestic HRM:
International relocation and orientation:
International relocation and orientation involves arranging for pre-departure training, providing immigration and travel details; providing housing shopping, medical care, recreation, schooling information and finalizing compensation details such as delivery of salary abroad, determination of various international allowances and taxation treatment, for expatriate employees.
The company must give expatriates adequate training to prepare them and must provide living and working conditions of a high standard in their foreign destination. This will ensure that the employees are able to deal with the differences in doing business in that country and that they settle in well to their new surroundings and working environment.
If the company hasn’t provided proper training or not covered any of the essential preparation for international placement then the expatriate may want to leave the job and return to his/her home country.
This would have a devastating effect on the company because recruiting, selecting, and training procedures would have to be carried out again and this is costly in terms of money and time lost. Also it will promote an element of failure within the company and create bad publicity.
Administration services for expatriates:
The host country operates the administration services for expatriates. This can be a time consuming and complex activity because policies and procedures are not always clear-cut and may not conflict with local conditions.
Ethical questions can arise when a practice that is legal and acceptable in the host country is unethical or even illegal in the home country.
Expatriates are subject to international taxation, and often have both domestic and host-country tax liabilities. Therefore tax equalization policies must be designed to ensure that there is no tax incentive or disincentive associated with any particular assignment. These tax equalization policies can be complicated due to widely differentiated tax laws across host countries and by possible time delays between the settlements of domestic and international tax liabilities.
Good relations between the home-country and host-country governments can be useful in this instance to help come to a quick solution for tax equalization.
Host Government relations:
This represents an important activity for a Human Resource Department, particularly in developing countries where work permits and other important certificates often are obtained more easily when a personal relationship exists between the relevant government officials and multinational managers. Maintaining such relationships helps resolve potential problems that can be caused by ambiguous eligibility and/or compliance criteria for documentation such as work permits.
If locating in developed countries, companies will encounter higher labour costs and the HR department will have greater responsibility in terms of issues such as: health and safety and taxation.
While if they were to locate in less-developed countries the Human Resource Department would have to deal with issues such as learning about local culture, for example gift giving and bribery to maintain good relations with government.
Provision of language translation services:
“Communication between people from different cultural backgrounds can be very difficult (even if they speak the same language) and the opportunity for misunderstandings is usually high”.
(Source: Harzing A.W, Employee RelationsVolume 23 Number 6 2001 pp. 581-598).
Language translation service for internal and external correspondence is an additional international activity for the Human Resource Department. In countries where a foreign language is spoken it is important to have translations facilities in place to insure good communication levels and lack of misunderstandings.
If the Human Resource Department is the major user of language translation services, the role of this translation group is often expanded to providing translation services to all foreign operation departments within the multinational.
Variables that moderate the differences between Domestic and International HRM:
The Cultural Environment:
Kroeber and Kluckhohn defined culture as: “Culture consists of patterns, explicit and implicit, of and for behaviour acquired and transmitted by symbols, constituting the distinctive achievement of human groups, including their embodiment in artefacts; the essential core of culture consists of traditional ideas and especially their attached values; culture systems may on one hand, be considered as products of action, on the other as conditioning elements of future action” (Source: Human Resource Management:
A Contemporary Perspective, Beardwell I and Holden L , pp602).
In may view culture is a shaping process which happens over a long period of time which affects member of a country or social grouping in terms of; how they behave, their common values, attitudes to life; work, time, religion etc, and how they share these attributes/values in their society.
Culture is so subtle a process that people are not always conscious of its effect on values, attitudes and behaviours; therefore it is essential for businesses to appreciate the cultural differences in specific countries before setting up abroad.
When completing HR activities such as training and selection the companies must be aware of these fundamental differences in culture and carefully formulate and implement the businesses strategies and procedures to complement the country’s culture.
Professor Michael Porter suggested that ” A multi-domestic strategy emphasises local responsiveness with a structure that gives a great deal of autonomy to local subsidiaries, whilst a global strategy emphasises efficiency and requires a structure that provides varying degrees of co-ordination of policy and operations”
(Source: Kidger P.J, Employee RelationsVolume 24 Number 1 2002 pp. 69-85)
Thus the industry, in which the multinational firm is involved in, is of considerable importance because patterns of international competition vary widely from one industry to another.
At one end of the scale of international competition is the multi-domestic industry, one in which competition in each country is essentially independent of competition in other countries for example retailing and distribution.
For this type of industry it is essential to adapt well to the country in terms of all the IHRM activities because past successes of the businesses in its home country will not have any affect on the success in the host country.
At the other end of the scale is the global industry, where the firm’s competitive position in one country is significantly influenced by its position in other countries, for example commercial aircraft.
A global industry is not merely a collection of domestic industries but a series of linked domestic industries in which the rivals compete against each other on a truly worldwide basis.
In a multi-domestic industry the HRM function is structured to deliver the international support required by the primary activities of the firm and global practices tend to lower costs and enable companies to deal with global competitors , customers and suppliers.
A multi-domestic industry’s international strategy is broken up into a series of domestic strategies. Multi-domestic practices enable companies to adjust to unique local conditions, for example the cultural requirements of different societies.
Extent of reliance of the multinational on its home-country or domestic market:
When looking at large multinational companies is generally assumed that large firms have a global market perspective, which is dominant in the firm’s culture and thinking. However the size of multinational is not always an indicator of how much the firm is globally orientated.
For example in the US Coca Cola and Mc Donald’s have a very large domestic market and this influences how they organise their activities.
Thus the large domestic market influences the attitudes of senior management, and will generate a large number of managers, with an experience base of mainly, or even exclusively, domestic market experience.
On the other hand in small advanced economies such as Switzerland, multinationals tend to be more international orientated due to the relatively small domestic market, with Switzerland having a relatively small population of 7 million. Nestle a Swiss based multinational are the most foreign-orientated multinational, with 87% of assets, 98% of sales, and 97% of employees located outside of Switzerland.
(Source: International Human Resource Management, Dowling, Welch and Schuler)
Attitudes of Senior Management:
The effective implementation of global strategies depends to a large degree on the existence of an adequate supply of internationally experienced managers and a shortage of international managers has been identified as an increasingly important problem for European multinationals (Scullion, 1995).
A crucial factor in the success of a multi-national company is the role of senior management and specifically how strong an international orientation they have in terms of corporate goals and objectives.
Managers may tend to focus too much on domestic issues, and assume that there is a great deal of transferability between international and domestic HRM practices. However this is not the case and failing to recognise these fundamental differences, in the majority of cases will end in major disruptions to international operations.
Therefore the HR manager must think “globally” through the development and implementation of HR policies that facilitate the development of globally orientated staff. This can be achieved through management having the following skills:
> Strong intercultural and communication skill
> Ability and resilience to deal with complexity
> Ability to handle with diversity
> Knowledge of local employment legislation and conditions
> Awareness and understanding of specific business aims
> Understanding the International Business Environments
(Source: Introducing Human Resource Management, M. Foot and C. Hook, pp446)
Complexity involved in different countries and employing different national categories of employees:
In my view one of the main difficulties for a company setting up abroad is employing people of different nationalities, I feel that the company may need to have new procedures to deal the language, attitude and motivation differences in the host country employees. Also expatriate employees must be integrated into the organisation and have a high level of communication between host country and expatriate employees is required in order to eliminate any confusion over roles and responsibilities.
Many companies send out expatriate employees, Edstrï¿½m and Galbraith (1977) found three general company motives for doing so. These are as follows: position filling, management development and organisation development.
Position filling refers to the transfer of technical knowledge, mainly to developing countries where qualified local nationals are not always available.
Transfer for management development gives the expatriate manager in question international experience and develops him for future roles in subsidiaries abroad or with the parent company.
The third reason for international transfers, the final goal is not individual development but organisation development. Transfers are used to change or maintain the structure and decision processes of the organisation. In this case, international transfers are used as a co-ordination and control strategy.
This strategy consists of two elements: socialisation of both expatriate and local managers into the corporate culture and the creation of a verbal information network that provides links between subsidiaries and headquarters.
(Source: Employee Relations Volume 23 Number 6 2001 pp. 581-598)
The complexities introduced by operating on the global scene necessitate additional knowledge relating to the particular country or countries involved as well as demonstrating competence in communication an inter-cultural awareness.
My findings show that the human resource department have a more extensive and important role when preparing, supporting and organising employees abroad.
International HRM encompassed all the aspects of the foreign country for example: its people and their attitudes, government policy and much more.
If a company is successful their respective domestic market it is not the case that they will just set up in another country and be sucessfully there too. Therefore they need to adopt effective HRM practices and procedures to operate effectivly in a foreign location.