This report critically analysis all the issues affecting the organisation to enter into an international market. Many companies like Proctor & Gamble, Coca-Cola, Pepsi, M&S, Tesco are moving towards the global market because revenue maximization. IHRM is an integral part of the Human resource management. “Human Resource Management (HRM), is the process of policies and practices which involved in carrying out the people or human resource aspects of a management position which includes recruiting, screening, training, rewarding and appraising”, (Dessler, 2008).
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When companies are operating their businesses out of the national boundaries than it is becomes the multinational enterprises. “Multinational companies are the firms that are headquartered in one country but have operations in one or more other countries”, (Rugman, et al., 2009, p.7). Some of the major multinational companies are Wal-Mart (US), BP (UK), Exxon Mobil (US), General Motors (US) or Toyota (Japan).
The reasons for going in the international market are to create an economic integration and increase the market share and companies are using different international entry methods like mergers or acquisitions, joint-ventures, franchising to gain the competitive advantages in the international market. However, there are some challenges in the international market such as the cultural differences, diversity in the workplace or the pressures from the rules and regulations of the government and the trade unions.
International HRM deals with all of these issues regarding the management of human capital in an international context. “International HRM is the process of selecting, training and developing and compensating personnel in overseas positions”, (Rugman, et al., 2009, p. 354). There are some challenging factors in the global work environment such as cultural diversity at the workplace and that’s why the compensation practices may vary from one country to another and employment laws and regulations will be differ from one country to another as well.
The strategic role of HRM in an international context will also be different than in the domestic firms. “The strategic role of HRM is complex enough in a purely domestic firm, but is more complex in an international market, where profound differences between countries in labour market, culture, legal systems, economic systems and the complicate staffing, management and development, performance evaluation and compensation activities”, (Hill, 2009, p.626)
The main approaches to IHRM can be ethnocentric, polycentric or geocentric depending on the nature of the country and its cultural background. In an ethnocentric approach there is a belief that one’s own way of doing things is superior to that of others and it can be a major challenge for the IHRM. “Ethnocentrism can be a major challenge for international HRM and these challenges include recognising differences, combining the advantages from different styles and approaches, adjusting and adapting to succeed with different people in different partnerships in different markets”, (Rugman, et al., p. 134). In an ethnocentric firm, the top management will dominate the employees working for the organisation. “Ethnocentric firms are where top management is dominated by home-country nationals and procedures and management styles that are transferred from the head office and imposed on regional subsidiaries in place of local ways of doing things”, (Rugman, et al., 2009, p.147).
On the other hand, the polycentric firms are looking likes a semi-autonomous organisation where restriction will put in some of the departments and other departments may not be influenced by restricted rules. “This act like a federation of semi-autonomous organisations with financial controls or strict reporting structures holding them together and subsidiaries are able to reflect the local cultural norms, and headquarters appreciates the need for different organisations designs, procedural norms, reward systems etc. as long as profits flow to the centre”, (Collinson, et al., 2009, p. 147).
Furthermore, the geocentric organisations are seen to be an ideal, collaborative and meritocratic form of global organisation for example, Unilever. “It includes an equal sharing of power and responsibility between headquarters and subsidiary, senior management promoted according to the ability rather than nationality and subsidiaries that share worldwide objectives with managers focusing beyond national market interests”, (Collinson, et al., 2009, p. 147).
Furthermore, it is required to have a business strategy when operating in the international market. The role of IHRM is to fulfil the objective of the business level strategy and fulfil the corporate strategy. “Corporate strategy is concerned with the overall purpose and scope of the business to meet stakeholder expectations. This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business. Corporate strategy is often stated explicitly in a “mission statement”, (Johnson, et al., 2008)
The objective of this report is to identify the different issues which are affecting in the international HRM and the ways of overcoming the challenges of IHRM. This report critically analysis and evaluates all the factors related to the IHRM in an international context.
Previously people management was related to the managing people within the organisation but they never treated as resources. “Human resource policies should be integrated with the strategic business planning because strategic HRM is emphasizing the integration of the HR policies with both one another with the business planning”, (Keith Sisson, 1990).
There is a strategic significance of the HRM in the international market. Strategic HRM thinks people as most important asset and it deals with the improvement of human resources. “People are the most important asset and the people management is the responsibility of everyone and far too important to be left to personnel managers. It follows that HRM needs to be owned by line managers and by senior managers and by implication is too important to be left to personnel managers”, (Guest, 1991). HR managers need to implement the policies strategically in order to manage their people and to gain the competitive advantages.
International Training and Development:
Training and development is an important aspect of IHRM. “Training means the process of teaching new employees the basic skills they need to perform their jobs”, (Dessler, 2008, p-294). The difference between the local training and development and the international training and development is to get more experiences from the international market. Many companies like IBM, Microsoft are sending their in different counties to get the international knowledge and experiences.
Challenges of IHRM:
The challenges of HRM include the standardisation and adaptation of work practices of different countries.
HRM in the host country context standardisation and adaption of work practices such as IHRM are using some of the strategies of making the standardisation such as language training, cultural adaptation and competitive compensation. One of the major aspects of IHRM is the adaptability which is an individual’s ability to adapt a cultural change. It is important for the HR managers to adapt along with the different cultures if they want to run their business in an international context.
The degree of integration of policies within the local country such as the degree of integration of policies within the local country will depend on the self-reliance, age, experience and education and health and family status.
HRM implications of language standardisation like there are some HRM implications of language standardisation of HRM by the local companies by language learning. Learning the local language can be helpful because it will help the managers to learn and understand the languages of the colleagues and help to increase the performance of the organisation.
Integration between IHRM Strategy and Business Strategy:
It is important to maintain the integration between the IHRM strategies with the business strategy. There are some strategies which will help to make an adjustment between the IHRM and the business strategy such as the transition strategies. “Transition strategies are designed to help smooth movement from foreign to domestic assignments”, (Rugman, et al., 2009, p. 358). Some of the other strategies which are affecting the IHRM are the following:-
Repatriation agreement: This agreement will tell how long a person will stay in an overseas place. “It is an agreement that spells out how long a person will be posted overseas and sets for the type of job that will be given to the person upon returning”, (Rugman, et al., 2009, p. 358).
Rent or maintain the expatriate’s home during the overseas tour: under this agreement the company can reduce the financial burden for the managers who went for a particular place over a tree-year to four-year plans. “Both Union Carbide and the Aluminum Company of America have such arrangements which is used to reduce to financial burden”, (Rugman, et al., p. 359).
Assign a senior executive as a sponsor for every manager posted abroad: some of the companies put some senior executives when every manager went to visit in different places. “This ensures that there is someone looking after each expatriate and ensuring that his or her performance, compensation and career path are on track. When the expatriate is schedule to return home, the sponsor begins working internally to ensure a suitable position”, (Rugman, et al., 2009, p. 359). Many companies like IBM and Carbide use this form of the mentoring process.
Maintaining the on-going communications with expatriate managers: this strategy will ensure and let the managers know what is happening in the home country. “it will ensure that what is happening in the local office and if they are scheduled to be home on leave for any extended period of time, the company works them into projects at headquarters and in this way they can maintain their visibility at headquarters and increase the likelihood that are viewed as regular members of the management staff rather than the outsiders”, (Rugman, et al., 2009, p. 359)
The impact of IHRM effects on culture:
Culture is a major aspect of International HRM where there are some challenges in the cultural diversity in the workplace. “Corporate culture is the shared values, traditions, customs, philosophy and policies of a corporation also the professional atmosphere that grows from this and affects behaviour and performance”, (Rugman, et al., p. 132).
Managing the cross culture arises from the international market situation where the managers from the international patent company need to understand the local employees from the host country and it may require different organisations structure and HRM procedures.
Because of globalisation there is an impact of cultural diversity in the work place. People from different countries are working together or they are moving from one place to another place more easily because of this globalisation. To manage this cultural diversity HR managers can use Hofstede’s cultural dimension in the national cultures such as the following:-
Power distance: The cultural differences can be understood by the cultural difference among the two countries. “This refers to the extent to which people in a particular culture accept and expect that power in institutions and organisations is, and should be distributed unequally”, (Edwards & Rees, 2010).
Uncertainty avoidance: Another important element of understanding the cultural differences is the uncertainty avoidance. “This indicates the extent to which people in a culture feel nervous or threatened by uncertainty and ambiguity and hence create institutions and rules to try to avoid them”, (Edward & Rees, 2010)
Individualism/collectivism: It will determine the nature of the culture in any particular country. “In an individual culture people tend to look after their own interests and those of their immediate family, whereas in collectivist culture there is a tighter social framework in which each person respects the group to which he or she belongs”, (Edward & Rees, 2010)
Masculinity/femininity: Depending on the masculinity or femininity structure the culture will be different. “In a masculine culture the dominant values are said to be ambition, assertiveness, performance and the acquisition of money and material objects, where as in a so-called feminine culture values such as the quality of life, maintaining personal relationships and care for the weak and the environment are emphasized”, (Edward & Rees, 2010).
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Time orientation: Finally, the time orientation will determine the cultural influences in any country. “originally termed as confusion dynamism and this is related to the time horizons that people in different cultures are oriented towards with some looking several years ahead in declining upon particular courses of action whilst others are more generated to the shorter term”, (Edward & Rees, 2010)
It is important to understand the cultural diversity at the workplace and manage them accordingly and Hofstede’s cultural dimension will help the HRM manager to make the decisions. The concept of an expatriate can help the international organization to expand their market operations in different countries and to gain the competitive advantages. “An expatriate (in abbreviated form, expat) is a person temporarily or permanently residing in a country and culture other than that of the person’s upbringing or legal residence”, (Mercer, 1996). The role of an expatriate is to change the shape of the cultural influence by living on that particular place.
Resourcing Strategy in IHRM:
Resourcing strategy in IHRM deals with the all the issues related to the management of human resources. “It considers the consequences of international cultures on employee performance and welfare and explores the consequences (such as diversity issues) of the various employee resourcing options, for example: hiring local staff vs. international appointments. It also examines training and development in an international environment and the complexities of multinational reward management practice”, (www.koganpage.com, 2010). Understanding the resourcing strategy can help to gain the competitive advantages in the international market.
Recruitment of Labour Market:
One of the major challenges for the multinational companies is the varying demand of the organised demand of the labour around the world. Because of national differences the nature of economic, political and legal systems can create a variety of labour relations systems and strategy. “In managing labour relations the most multinational companies use a combination of centralization and decentralization with some decision being made on headquarters and others being handled by the mangers on site”, (Colinson, et al., 2009, p. 366). For example, US companies are exercising more centralized management control and close reporting system and UK and EU companies are more decentralized and less control on the reporting system and flexible management control.
Understanding the labour market is an important aspect of the IHRM and companies need to consider the labour market relations with the company’s goals and objectives. “Labour relations practices vary widely in the international arena, for example, union-management relations and industry democracy approaches are different throughout the Europe and these dramatically differ from those in Japan”, (Rugman, et al., 2009, p. 377)
Labour market can support the international organisations by decreasing the labour costs because in some countries the labour costs are lower than the other countries and it will help to gain the competitive advantages as well. A strong relationship between the labour market and the international organisation will help to gain the competitive advantages in the global market.
Understanding the labour legislation in the international market is required to make an effective IHRM activities, in an international market such as labour laws, rules and regulations from the labour union imposed in any particular countries, compensation and payment activities based on the international laws and regulation etc.
According the porters generic strategies the IHM can make the profit either by cost leadership or a differentiation strategy.
One of the major aspects of International HRM is to understand the cultural differences in different countries such as the cultural difference and the cross-culture influences among the people living on those places. “IHRM should take a lead in the development of organisation’s intercultural competence as well as in managing groups and teams”, (Tung, 2008). The growing concern about the cross cultural activities includes the awareness of culture by learning making a suitable multicultural environment where people from different cultural background will work together as a cross-cultural perspective.
Because of globalisation companies are moving towards the global business environment because of revenue generation and expansion of market share in the emerging market. The political dimensions towards the international markets are growing but there are some risks associated with the international business. “The different political risks are affecting the firms such as political philosophies in different countries made by the local government, social unrest, terrorism or arm conflict, rising nationalism, competing between the religious groups or the newly created international alliances, (Collinson, et al., 2009, p. 392). In contrast, the careful planning and implementation of HR planning can help the HR managers to reduce the political risk in the internal market.
International HRM is a challenging issue in modern business environment and the HR managers need to carefully implement those policies and procedures related to the IHRM. The role of HR managers is to adopt the new cultural diversity and employee diversity in the workplace. It can be done by the training and development activities and employee empowerment. Employee empowerment can help the organisation to increase the profit and to get the competitive advantages by the use of flexible working team and rewarding the employees who made a big contribution in getting the results.
International recruitment policy making need to be effective by selecting the employees from different locations such as outsourcing or offshoring for example, Unilever and P&G are one of the most successful organisation for making the outsourcing activities in the world market, (Edward & Rees, 2009). Furthermore the international compensation plan needs to be in line with the country’s rules and regulations and government policies and procedures. The concept of competitive compensation can be a solution for the international HR managers to overcome the challenges in the global market.
Finally, globalisation is affecting the HRM in different ways and the manager’s role is to fit them according to the requirements of the company. The overall objectives of an organisation are to maximize their profit and the HR managers need to be concerned about fulfilment of the company’s goals and objectives.
Some of the limitations need to be considered when making this essay such as the limited amount of sources of information in an international country and the limited accessibility of the sources of information. However, this essay can give an idea about the IHRM and their uses and disadvantages in the international context.
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