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Definition of International human resource management

Human resource management includes the firm’s work systems and its employment practices. It embraces both individual and collective aspects of people management. It is not restricted to any one style or ideology. It engages the energies of both line and specialist managers (where the latter exists) and typically entails a range of messages for a variety of workforce groups’. (Boxhall, P. and Purcell, J. 2008).

HRM responsibilities include:

Recruitment and selection

Training and development

Human resource planning

Assessing performance of employees

Payment and reward systems

Initiatives to align employee developments to corporate strategies.

A model for investigating human resource strategies

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International human resource management (IHRM)

Boxall, P. (1992) defined International Human Resource Management (IHRM) as ‘concerned with the human resource problems of multinational firms in foreign subsidiaries (such as expatriate management) or more broadly, with the unfolding HRM issues that are associated with the various stages of the internationalisation process. (Boxhall, P. 1992).

Mark Mendenhall (2000) sought to be more specific by outlining a number of criteria relevant to a definition of IHRM.

IHRM is concerned with HRM issues that cross national boundaries or are conducted in locations other than the home country headquarters.

IHRM is concerned with the relationships between the HRM activities of organisations and the foreign environments in which the organisations operate.

IHRM includes comparative HRM studies; e.g. differences in how companies in Japan, Thailand, Austria and Switzerland plan for upgrading of employee skills and so on.

What IHRM is not

IHRM does not include studies that are focused on issues outside the traditional activities inherent in the HRM function.

E.g. leadership style is not IHRM, unless specifically linked to an HRM function; developing a selection programme to measure and select global leaders would arguably lie within the domain of organisational behaviour.

IHRM does not include studies of HRM activities in single countries.

E.g. a study of personnel selection practices in Saudi Arabia, whether undertaken by an English, German or Canadian researcher, is still a study about domestic HRM in Saudi Arabia. Though such studies may have interest to those who work in international HRM issues, they are essentially examples of domestic HRM research.

IHRM approaches

Ethnocentric: key positions filled by nationals of parent company

Polycentric: host country nationals recruited to manage subsidiary in their own country

Geocentric: best people recruited, whatever their nationality

Regiocentric: best people recruited within region in which the subsidiary operates (e.g. EU, USA).

IHRM solutions

Choice of IHRM approach depends upon:

Degree and type of internationalisation

Type of industry and markets served

Characteristics of staff

Cultural preferences.

Advantages and disadvantages of a ‘decentralised’ approach to IHRM

Advantages

Disadvantages

Groups within the subsidiary can gain in status

Tendency to become ‘exclusive’

Groups within the subsidiary become more cohesive, fostering group identity

Loss of central control, higher administrative costs as HRM function is sent ‘down the line’

IHRM takes place within a culture appropriate to the local workforce and customers

Loss of organisational control and organisational identity

Work and Islamic culture

Latifi (1997) identified the following work-related values of Islamic culture:

Equality before God

Individual responsibility within a framework of cooperation with others

A view that people in positions of power should treat subordinates kindly, as if their subordinates are brothers or sisters

Fatalism, but also a recognition of personal choice

Encouragement of consultation at all levels of decision-making, from family to the wider community.

IHRM and training and development

Training and development increases in complexity as MNEs move abroad.

Types of training and development depends on a number of factors:

The degree to which management is centralised.

The types of workers employed in subsidiaries or joint ventures.

The importance of branding, and the extent to which employees are expected to reflect the brand.

The cultural expectations of training.

In a global company, the training may well be centralised so that suppliers, employees and distributors are aware of the brand image that needs to be communicated.

E.g. in Ford training programmes are set up centrally, and then translated and delivered to all main suppliers, subsidiaries and distributors.

If, however, a more polycentric approach is taken, then the training may well be far more local, and more in line with the local culture

Cross-cultural awareness

Support provided for employees moving to overseas subsidiaries:

Environmental briefings

Cultural orientation

Cultural assimilation

Language training

Sensitivity training

Field experience.

IHRM and reward strategies

To design an appropriate reward strategy for employees taking up an international position, may require a number of factors to be considered, including:

A knowledge of the laws, customs, environment, and employment practices of the foreign countries.

Familiarity with currency relationships and the effect of inflation on compensation.

An understanding of the allowances appropriate to particular countries, etc.

For example, awareness of employment related legislation in the country of operation is vital to an appropriate international reward structure. India has as many as 45 labour laws at national level and close to four times that at the level of state governments (Kaushik 2006).

The main method of drawing up a compensation package is known as the ‘balance sheet’ approach.

This approach is, according to Reynolds (1986): ‘a system designed to equalise the purchasing power of employees at comparable position levels living overseas and in the home country, and to provide incentives to offset qualitative differences between assignment locations’.

IHRM and ‘Balance Sheet’ reward strategy

In order to achieve ‘balance’ in reward structure, the organisation must take into account:

Income taxes incurred in both home and host country

Housing allowances (which might range from financial assistance to employees to providing company housing)

Cost-of-living allowances (to adjust differences between home and abroad)

Contributions to savings, pension schemes, etc. while abroad

Relocation allowances (including the moving, shipping and storage of personal and household items and temporary living expenses)

Education allowances for expatriate’s children (e.g. language tuition and enrollment fees in the host country or boarding school fees in the home country)

Medical, emergency and security cover.

Appraisal

Identifies individual’s strengths and weaknesses

Reveals organisational obstacles blocking progress

Provides feedback to improve human resource planning

Improves communication.

Cultural variations: performance appraisals

Dimension general

USA low context

Saudi Arabia high context

Japan high context

Objective of performance appraisal

Fairness, employee development

Placement

Direction of company/employee development

Who does appraisal?

Supervisor

Manager several levels up. Appraiser has to know employee well

Mentor and supervisor. Appraiser has to know employee well

Authority of appraiser

Presumed in supervisory role or position. Supervisor takes slight lead

Reputation important (prestige is determined by nationality, sex, family, tribe, title, education). Authority of appraiser important

Respect accorded by employee to supervisor or appraiser. Done co-equally

How often?

Once a year

Once a year

Developmental or periodically once a month. Evaluation appraisal after first 12 years

Cultural variations: performance appraisals

Dimension general

USA low context

Saudi Arabia high context

Japan high context

Objective of performance appraisal

Fairness, employee development

Placement

Direction of company/employee development

Who does appraisal?

Supervisor

Manager several levels up. Appraiser has to know employee well

Mentor and supervisor. Appraiser has to know employee well

Authority of appraiser

Presumed in supervisory role or position. Supervisor takes slight lead

Reputation important (prestige is determined by nationality, sex, family, tribe, title, education). Authority of appraiser important

Respect accorded by employee to supervisor or appraiser. Done co-equally

How often?

Once a year

Once a year

Developmental or periodically once a month. Evaluation appraisal after first 12 years

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