International Human Resource Management (IHRM) can be defined as follows (Downing and Welch 2004, cited in Dowling, Festing and Engle, 2008 cited in Davidson and Carswell, 2009, p. 8)
"International HRM refers to two relatively separate areas of practice and
1. Various comparisons of how HRM and Industrial Relations (IR) practices
are evident in various countries, and
2. The developing field of how HRM is conducted across countries and
cultures, in multinational and international companies (tending towards the
'global HRM' concept)."
With the growth of multinational corporations and traditional businesses stretching across transcontinental borders, it is but natural that the relevance and scope of International Human Resource Management has only grown in recent years. Andre Laurent described IHRM as being in its infancy stage in 1986 (Laurent, 1986 cited in Stahl and Bjorkman, 2006, p. 1). IHRM as a sphere of management research has grown over the past 30 years or so. While earlier the subject mainly dealt with problems such as expatriate adjustment, today the gamut of the subject is far more encompassing and complex. Today's economies have complex and interdependent labour structures. This has directly or indirectly led to the development of IHRM as a significant research field with the amalgamation of empirical studies, well thought out models and theories (Stahl and Bjorkman, 2006, p. 1).
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The Multinational corporation of today has complex labour issues because it is not only strategically but also functionally stretched across several locations across the globe. The modern IHRM theories completely account for this factor and include discussion models that seek to find amicable solutions to these issues. In this regard, the research conducted by Eldstorm and Galbraith in 1977 (Stahl and Bjorkman, 2006, p. 2) is particularly relevant because it was among the first to appropriately analyze the drivers behind transferring managers across units in different locations. They outline three significant drivers in the decision making process. The principal motive is to fill up vacancies created when skilled local replacements are unavailable. A secondary motive would be to encourage in the professional growth of the managers involved and the third motive would be to bring about an overall improvement in the organization on the whole. This research became the primary base for further studies in this regard and is still regarded globally relevant.
Over time IHRM began to place more emphasis on being integrated with the management organizational strategy and objectives (Stahl and Bjorkman, 2006, p. 4). With businesses spreading far and wide, businesses are being faced with organizational dilemmas that must be overcome for improved results. Businesses need to make difficult choices between equally appealing labour management decisions especially in the emerging field of outsourcing and Offshoring (Prahalad and Doz, 1987, cited in Stahl and Bjorkman, 2006, p.5).
1.2 Limitations of IHRM
Modern IHRM is a constantly evolving field and is extremely dynamic because it has to keep pace with the development agenda of the human resource function in countries across the globe. In that respect, IHRM is similar to domestic human resource management, except on a much wider canvas (Dowling and Welch, 2004, cited in Stahl and Bjorkman, 2006, p. 6). The functions are far more complex and many more skill sets have to be appended for the IHRM role to be relevant. The level of risk exposure is also steep and there are also many more stakeholders who will hold the functional custodians responsible in case of inefficiency and mismanagement.
One of the main criticisms levied against IHRM as such is that the existing bank of IHRM literature was too theoretical and difficult to be implemented in the practical world (Harzing and Ruysseveldt, 2004, p. 66). Many of the theories in IHRM were mere adaptations of contemporary thought processes in the domestic human resource management sphere and were only suitably modified to suit the requirements of MNCs.
1.3 Evaluation of IHRM Theoretical Perspectives
As discussed above, the IHRM subject of today has far more strategic overtones than before. There are several IHRM theories and models published and available today which greatly contribute to a firm's decision making on how it needs to go about managing its labour management issues. Every organization is different and has its own inherent set of labour issues. It is therefore imperative that each organization chooses that IHRM theory which is most suited to its specific structure and business strategies. Whatever be the organization's choice one must completely recognize the strategic significance of IHRM in the modern context. Two traditional models of IHRM which have global significance are the Adler and Ghadar model and the De Cieri and Dowling model.
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Harzing and Ruysseveldt (2004, p. 68) discusses Adler and Ghadar model of internalisation. This model seeks to find a relationship between Vernon's life cycle theory with anticipated HRM issues. Adler and Ghadar suggested a fourth phase that would succeed the three phases in a product life cycle which was to "differentiate and integrate" and formulated a model that deeply analyzed the impact of cultural differences in human resource management. Organizations have to think beyond the scope of their local markets and communities in order to sustain themselves for a longer period and hence, integrating strategies to respond to global cues is important.
The De Cieri and Dowling model also discusses IHRM in similar lines (Harzing and Ruysseveldt, 2004, p. 68). They pointed out that all MNCs experienced a "fundamental tension between the need for global co-ordination and local responsiveness" (Harzing and Ruysseveldt, 2004, p. 68). They provided a strategic framework within which companies could work to integrate strategic IHRM into their operations. This model identified Exogenous factors and Endogenous factors. All MNCs have to sustain themselves in the real world surrounded by exogenous factors like their industry characteristics and country specific problems. Endogenous factors such as the organizational structure and the overall business strategy is largely influenced by the exogenous factors. Strategic HRM acts as the bridge between the concerns and goals of the organization and the endogenous factors that governs these.
Both models discussed above prefer to look at IHRM as a strategically significant function that is distinct and more far reaching than a domestic HRM function.
Examination of Flexibility in IHRM
2.1 Globalization and Labour Flexibility
Business processes are growing more and more complex with every passing day. Newer ways of doing business are emerging in times of blurring geographical boundaries and increasing globalisation. An emerging trend is that of 'disaggregation of labour' (Carnoy and Castells, cited in Carnoy, Castells and Benner, 1997, p. 1). This' disaggregation' refers to a
'..a shift in the locus of work organization from permanent, stable collections of "jobs" to individualized, flexible employment defined by human capital portfolios.' (Carnoy, Castells and Benner, 1997, p. 1)
Flexible working, whether qualitatively or quantitatively, (Vaughan-Whitehead, 2005, p.76), is slowly becoming the norm-de-rigueur for many businesses in a quest to remain competitive and maintain productivity. Flexibility in labour management can be expanded to be relevant across many numbers of spheres. The internal drivers of flexibility may be functional, numerical, financial or temporal. Meanwhile, the external drivers of flexibility can be either through in-sourcing or outsourcing. Whatever be the path chosen to implement flexible working, globally more and more companies are jumping on to this bandwagon recognizing its obvious merits. Globalization also lends itself positively to labour flexibility because it allows managers and stakeholders to choose the right candidate for a job from a wider pool of resources. As such there is both 'resource flexibility and co-ordination flexibility for the globally relevant organization (Stahl and Bjorkman, 2006, p. 435).
On the opposite side, even trade unions have also somewhat adapted to business demand for greater flexibility in work practices to keep pace with volatile circumstances (Leisink, 1999, p. 17). Trade unions have always resisted any business strategy that promotes growth at the expense of a competitor and have also been unfavourably inclined towards flexibility options such as temporary and casual work. As a result, trade unions have negotiated improved terms for numerical and functional flexibility.
We can examine global trends in labour flexibility to get a better understanding of how this practice has pervaded through the very fabric of a business establishment currently. In Japan, the Rengo was set up to look beyond "enterprise unionism" and to negotiate better deals for the labour work force in general. Over the past few years in Japan, there is greater numerical and wage flexibility as also a far higher externalization of the labour markets (Sako and Sato, 1997, p. 18). The employees and employers carry similar cultural values and are aligned to the organizational goals and objectives due to this. In India, the entrenchment of trade unions has placed the focus firmly on human resource 'development' rather than 'management'. The trade unions cause quite a few obstacles and the HRM function has to actively negotiate in order to implement output flexibility as well as labour flexibility strategies (Nankervis, Chatterjee and Coffey, 2006, cited in Davidson and Carswell, 2009, p. 94). Companies often face a tough task of getting unions on board the HRM strategies and have to be content with human resource development initiatives instead. Asian countries, have their own cultural and socially relevant spin offs to current IHRM theories which significantly differs from a Westerner's perspective on the issue. Globalisation as well as the Asian Financial Crisis of 1997 and the current economic recession have all impacted the understanding of labour issues in these regions (Davidson and Carswell, 2009, p 100).
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The Western sensibilities towards labour flexibility are less sceptical. Thus, even with globalisation and the need to integrate a higher level of labour flexibility for improved business practices, a one size fits all model will absolutely not work. Each country has its own sets of labour theories and practices which are ultimately governed by several spiritual, social, economic, political and even historical factors. An effective IHRM policy is one that suitably understands and integrates these theories into a meaningful strategic outcome.
2.2 The Growth of Contingent Labour
One of the biggest indicators of the emerging trend of international labour flexibility is the growth of contingent labour and both in-sourcing and outsourcing of labour. Purcell and Purcell (1998, p. 40) indicates that the growth of sub contracting and other labour supply intermediaries according to figures made available from the Federation of Employment and Recruitment Services, has been rising since 1992, an obvious indicator of the growing interest in achieving flexibility for the organization as a whole. The article goes on to state the example of IBM which almost halved its workforce even while maintaining its operational levels by implementing flexible working policies. Companies everywhere seem to be downsizing their existing inventory of work force, something that the Atkinson model propounded in 1994. The core-periphery system in the Atkinson model presupposes that there would be an inner core of highly skilled employees surrounded by a periphery of disposable workers who could be retained on short term contracts.
One critical question that has emerged is whether the contingent labour that has emerged is a long term indication of things to come or a short term reaction to a specific labour market situation. Empirical data and several research studies (Casey, 1991; Gallie & White, 1995; Hunter & MacInnes, 1993 Marginson, 1991, cited in Purcell and Purcell, 1998, p. 42) seem to suggest that the contingent labour trends are at least in part strategically motivated, One such strong trend that we can examine in depth is outsourcing and Offshoring.
2.3 Emergence of Offshoring in Business
Outsourcing of both products and services has been a matter of much public debate during recent times. Fundamentally it is the differential in factor prices across geographical boundaries that have made a case for outsourcing. One of the macro economic ramifications of outsourcing is that it helps developing economies to be integrated with the developed world as the former shares in the wealth and prosperity of the latter. Outsourcing is significant in both the skilled as well as the unskilled labour markets in the UK. The concept of "narrow outsourcing" and "broad outsourcing" finds relevance in the UK consumption trend (Feenstra and Hanson, 1999 cited in Hijzen, Gorg and Hine, 2005, p. 6). Less developed countries are shifting focus to exporting low skilled labour services to developed nations and this demand-supply situation has caused the low skilled labour in developed nations to be less attractive, price wise. (Heckley, 2005, p. 374)
The emergence of the Indian Outsourcing industry especially in the call center space is of noteworthy mention here. One of the earliest call centres were set up by GE in the late 1990s (Taylor & Bain, 2005, p.8) British Airways in 2002 (Heckley, 2005, p. 375) and in 2007 it reported a sales growth figure of about 89% (GCC Report, 2007, p.11). By 2003 more than 115,000 people were employed by the industry and the numbers were growing at an exponential rate due to strong uptake of the service from developed nations (Taylor and Bain, 2005, p. 8). Call centres are organized into captive units or third party units. Slowly, the business process outsourcing sector (BPO) has also gathered steam with global majors like Accenture and EDS making an entry into the space. Today organizations expect to make a 40%-60% savings when they outsource work to India (Nasscom, 2002a cited in Taylor and Bain, 2005, p. 9). The key success factor has been the ability of the workforce to communicate in English and the pressure from shareholders to constantly cut costs and drive profitability.
2.4 The Costs for Achieving Labour Market Flexibility
Peter Drucker had declared that a ""a country's competitive position in the world economy has to be the first consideration in its domestic policies and strategies." Clearly a country that is comfortable with flexible labour work practices is obviously going to hold a competitive edge over others still grappling with its implementation. While there are very obvious advantages to outsourcing and achieving greater international labour flexibility, corporates in the real world are often tempted to go about this in a reckless fashion keeping only in mind the immediate financial gains out of the bargain. Merely using economic motives to guide decisions of outsourcing without deeply understanding the social as well as political implications is short sighted. Managers who do not take into account the cultural and social psyche of the local labour population will definitely face problems when it comes to attempting to expand the HRM understanding into new geographical spaces.
Another pertinent argument often raised is that outsourcing leads to loss of revenue and jobs for developed nations. There is little empirical data to support this allegation and an analysis of the UK balance of trade for the service sector actually shows little change over the last couple of years. (Heckley, 2005, p. 377) Outsourcing is a major trend today but it is still not significant enough to cause erosion in the home economy and certainly the benefits far outweigh the perceived perils.
IHRM is constantly evolving and the growing trend of labour flexibility is putting further pressure on the subject to evolve and stay up to date. Labour Flexibility is extremely relevant for the contemporary corporate organization and this is more than evidenced by the emergence of the global outsourcing industry and other forms of contingent employment. The recent economic crises especially taught corporates the value of profitability and there is an economic case for labour outsourcing as long as there is an arbitrage advantage to be derived out of the situation. With cost savings as high as 60% and the blurring of geographical boundaries due to improvements in technology, labour flexibility will be more than embraced by organizations and will continue to grow in relevance and scope in the future to come.