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As the success of domestic business depends on its human resources, the success of a multinational company depends on international human resource management.
Human resources managers are kind of people managers of any business organization, and are responsible for managing a wide range of employees. The human resource manager in a multi-national company with divisions or subsidiaries in foreign countries has all the normal HR responsibilities plus a brace of additional tasks that are specific to offshore operations of his department. He is literally responsible for international human resource management.
Typically, HRM refers to those activities undertaken by an organization to effectively utilize its human resources. These activities would include at least the following:
Human resource planning
Training and development
Compensation and Benefits
We can now consider the question of which activities change when HRM goes international. A paper by Morgan (1986) on the development of international HRM is helpful in considering this question. He presents a model of international HRM that consists of three dimensions:
The three broad human resource activities of procurement, allocation, and utilisation. (These three broad activities can be easily expanded into the six HR activities listed above).
The three national or country categories involved in international HRM activities:
The host-country where a subsidiary may be located,
The home-country where the firm is headquartered, and
“Other” countries that may be the source of labour or finance.
The three types of employees of an international firm:
Parent-country nationals (PCNs), and
Third-country nationals (TCNs).
Thus, for example, IBM employs Australian citizens (HCNs) in its Australian operations, often sends U.S. citizens (PCNs) to Asia-Pacific countries on assignment, and may send some of its Singaporean employees on an assignment to its Japanese operations (as TCNs).
So, International human resource management functions cover many different activities related to a business organization’s employees and contractors. The first and most important is the staffing needs of the company whether staff members are company employees or outside contractors. Other functions include recruiting and training employees, ensuring that they are performing at expected levels or better, handling performance issues and making certain that personnel and management policies conform to laws and regulations. IHR management is also involved in how the company manages employee compensation and benefits, employee records and personnel policies and practices.
The primary difference between domestic human resource management and international human resource management is the added knowledge and responsibilities required due to foreign operations. These typically include language (in non-English speaking offshore organisations), the local and national regulations and laws governing business operations within a foreign country; currency exchange rates, career outlooks, company benefits and incentives and, perhaps most important. The ethics and etiquette expectations of foreign business contacts. IHR management people must understand these differences clearly and stand ready to keep other company people informed of them to prevent embarrassing situations and unintentional ‘affronts’ from occurring
Basic human resources are a management activity while human resources development is considered a profession. The latter is targeted more specifically to developing personnel inside organisations through career development, organizational development and training activities. Both functions have undergone very-significant evolutions during the past several decades so that they now play major roles in staffing, managing and training people so that the will perform in an optimum manner for the organisation. Today, international human resource management is the fastest-growing subset of HR due to the growing trend for global business operations.
Still other international human resource management activities include ensuring workplace safety through dealing with drugs and drug problems, employee assistance, ergonomics, spirituality and diversity. In these efforts multiple sets of regulations must be used as guidelines; those of the company and those arising from being in a foreign nation with different laws, regulations and etiquettes. (managementhelp.org, 2007).
An understanding of international HRM, as Scullion (1995) points out, is of growing importance for a number of reasons, the most significant of which are:
Recent years have seen a rapid increase in global activity and global competition. As the MNCs increase in number and influence, so the role of international HRM in those companies grows in significance.
The effective management of human resources internationally is increasingly being recognised as a major determinant of success or failure in international business.
Research evidence shows that
Shortage of international managers is becoming an increasing problem for international firms,
To a large extent the successful implementation of global strategies depends on the existence of an adequate supply of internationally experienced managers,
Business failures in the international arena may often be linked to poor management of human resources, and
Expatriate failures continue to be a significant problem for many international firms.
In this connection, Schuler et al. (1993) argue that:
HRM at any level is important to strategy implementation;
Major strategic components of MNCs have a significant bearing on international management issues, functions, policies and practices;
Many of these characteristics of strategic international human resource management can help or hinder the MNCs in their attempt to achieve their goals and objectives; and
There are various factors that make the relationship between MNCs and strategic IHRM complex, thereby making the study of IHRM important.
To the above must also be added the issues which are important from the employees’ point of view and the effect that MNC’s HRM policies and practices might have on their morale and future career prospects. This is especially crucial because the bulk of employees of major MNCs come not from the companies’ home country but from many other nations with sometimes totally different ways of doing things. Employees from the host countries for instance might have different expectations from their job and their workplace than do the home country employees. In addition, host countries’ labour laws and regulations and industrial relations are very likely to be different from those of the MNC’s home country.
SIGNIFICANCE OF HUMAN RESOURCES
To achieve a competitive advantage in the global market, effective exploitation of human resources is of significant importance. To be in competition and have sustainable advantage it is necessary to manage internal resources in efficient way. For sustainable advantage in competition, creation of value is important, but it should be rare, it must be inimitable, and must be non-sustainable.
For the sustainable competitive advantage, human resources are the most important factor as it is inimitable, non-substitutable as well as valuable and rare.
Human resources- Valuable
For sustainable competitive advantage, resources must be valuable. The demand for labour is different in different firms and it is more different across the countries than it is within the countries due differences in availability of capital, difference of labour practices and social and cultural norms which are related to the work. The labour supply is also different across countries than within the countries due to difference in hygiene, health care, nourishment, training and educational opportunities. As competition becomes more global, there is an opportunity for creating value through human resources.
Human resources must have control, information, awareness, recognition and rewards to be the source of competitive advantage.
Human resources- Rare
To be source of sustainable competitive advantage the resource should be rare. Human skills are distributed normally in the population and are rare. Human resources vary in worth, and different jobs require different skills and finding these skills are rare. International firms have and can draw more labour pool; they have great potential for developing the valuable and rare resources than the domestic firms which draw from only labour pool.
Human resources- Inimitable
It will be more difficult to imitate the resources in the presence of causal ambiguity and social complexity.
Causal ambiguity: – Exists when their imperfection in understanding of the link between a firm’s resources and competitive advantage. If the firm which is in the competition is not able to identify the human resources which are responsible for competitive advantage, they cannot imitate the advantage. Causal ambiguity is caused mainly due to team production. When the work is done in team, it becomes difficult to identify who had contributed maximum to achieve the goal.
Social complexity: – It may arise from the transaction-specific relationships. The competitive advantage can be gained due to complex social situation. Even when the relationships are too complex, it is better to consider the value of relationship which may be due to the human transactions. The value can be developed due to the knowledge and trust which had been developed over the time. Human interaction may lead to social complexity.
In the global competition, the social complexity and causal ambiguity act as a barrier to imitation. It becomes difficult for the outsiders to understand the competitive advantage due to differences in customs and norms. The imitation becomes impossible due to religion, culture and political alliances.
Human resources- Non-substitutable
To stay in the competitive global environment there should be no good substitute available. Finding the good substitute is the difficult task. Human resources are the factor which can be transferred across the technologies, products and markets. Human resources are thus valuable. If the firm has obtained high level of learning capabilities then providing good training ensures that resources do not becomes out of date.
It is possible to substitute all the other resources for the short term and they can’t eliminate the substitution of the human resources for long.
Sources of personnel
There are four sources of personnel that multinational enterprise can use:-
Host country nationals
Third country nationals
Home country nationals
These are the personnel who reside abroad but are citizens of the parent country of the multinational enterprises. They are called as “expatriates”. The source of personnel is also called as “headquarters nationals”. Many of the multinational enterprise use the citizens from their own country in many foreign management and technical positions. Many expatriates have learned the languages and are now accepted by the host country. For example, Japanese manager assigned to head a marketing department in Washington D.C., USA for IBM America.
Host country nationals
These are the local people hired by the multinational enterprises. For example, American manager working for BMW, in USA. When the personnel of host country are employed, there is no problem for them to know about the customs, culture, and language. The cost of employing them is generally lower. Training cost is necessary sometimes.
Third country nationals
These are the citizens of countries other than which multinational is headquartered. For example, the British manager is working in Ford motors in USA. The problems which can be caused due to host or home country personnel can be avoided by sending third party personnel.
The new term “inpatriates “is been used by international management. It is an individual from a host or a third country assigned to work in home country. Japanese are also now relying pn inpatriates to help them achieve their international challenges or goals. The use of inpatriates to greater extend is helping multinational to face the global competitive environment.
The main important resource in any organization is human. The strategic role of HRM is complex in domestic firm, but it is more complex in international firms, because there is the huge difference between the economic system, legal system, culture, customs, market, etc. It is not necessary that the officer who is performing well in domestic firm may not perform well in international firm.
Factors Affecting HRM in International Markets
There has been numerous factors playing the lead in the carving the Human Resources when it comes International markets. So in order to keep the motion, the major factors can be depicted by the diagram below
Figure : IHRM Dimensions
The most influencing factor in human resources it the culture of the country where the facility is located.Culture itself it also influenced by many factors such as languages,religion, customs and many more.
Culture plays an important role because it drives the other three factors of the cycle. Furthermore culture also affect the person values, therefore it affects the country economic system and the people efforts to invest in education.
Confidence they can achieve career objective
Sense of personal accomplishment
Quality is high priority
Fair pay,given performance
Opportunity for growth &development
IT system support business need
Sense of personal accomplishment
Opportunity for training
Sense of personal accomplishment
Sense of personal accomplishment
Good reputation for customer service
Confidence in Senior management
Information &assistance to manage career
Regular feedback on performance
Education & Skill Levels
Different countries across the globe provide with different education standard and skill of value to employers.For example, countries such as Canada lacks skilled worker in many markets. Also the education opportunities vary from country to country.The country with highest number of person educated is usually preferred over country with a poor literacy rate.
The health of the economic system affects the IHRM. In order to understand the projection, the globe can be divided as developed countries and developing countries. Developed countries such as United States of America, cost of the labour are usually very high as compared to labour cost in developing country.
Political- Legal System
A country political system is composed of its laws, regulation and government plays an important role in H.R.M. This is because for the certain reason that these serve as the requirement for training, selection, human resource management and the labour relation.
For example, Canada is the leader in removing or eliminating discrimination in workplaces.
Measuring Performance within national boundaries
The concept and the principles’ of general management exist inmost countries but specification varies from country to country. This may be true for one country but a failure in the other. Therefore, organization need to consider points such as local business practices, legalrequirements and also the national cultures where performance management has to be considered.
Rating may be including the differencewhich includethe behaviour, the extent and how the performance it rated, how feedbacks are given and finally who performs the rating. Different behaviour is applicable to the different country.For example Japan is defines its standards from the point of culture such as the angle of bowing, eye contact and proper back alignment.
Whereas in country such as Ghana and other African nation, measure and focus it given to reflect repaying of obligation and loyalty as well as behaviour related to regulation and procedures in the country. The extents to which managers are able to measure performance also vary. Another area of difference could occur in feedback. Positive feedback it always appreciated, such as in Mexico, managers provide feedback before focusing the discussion on behaviour the employee need to improve. Whereas at Singapore Airlines Thai office, negative feedback it resisted because employee believethat this will cause bad karma.Therefore airlines have adapted to fit the local context culture.
Labour Relation management in International Human Resource
Usually in some industry, unions are present with the present motive to safeguard the employee interest. But in some industry, unions are forming labour alliances globally.TheMexico’s Miners and the Metal worker Union along with the United Steelworker of America wanted to create a common platform i.e. coalition of metals and mining industry union combining all the western area of the globe.
Companies that are confined to work across the national lines will need to work with global unions. Organization tries to establish goals and polices covering all the aspect such as labour agreement, labour relations and also the monitoring of the labour relation in a standard way.The day to day decision of the above mention points are handled by foreign subsidiary.This is because of labour laws internationally included different laws,economic system and different attitude.
In comparison to North America organization with the European organization,there exist a more central control over labour relations and laws in North America.International labourconsiders the negotiations involve arising between the management and the labour in social,economic and political context.Difference in culture affects the interaction of the labour negotiations.Organization navigates differences in negotiation style by working with the host country.
With regards to the International Human resource management, organization tries to keep its HR practices uniform with concern to thelabour laws and the diversity workforce.Sometimes HR also tries to ‘export’the practices from the other country and try to fit in the local level.
Khanna’s part still remaining
Challenges for International Human Resource Managers(in South African Organizations)
An HRM differs from I-HRM in various ways. The major dissimilarity between the two is that one is for company while other is for business. Though both business and company may look same but on a long run the two has different goals and vision.
HRM is required for business growth while an I-HRM determines the success or failure or failure of the company’s international business. From an HR prospective business focuses on profit while a company aims for success which could be expansion, profit, market share etc.
Due to this HRM and I-HRM are distinct in more than one ways yet still I-HRM can be seen as complex and difficult HRM. The factors which contribute toward these complexities are:
More HR activities: Activities operating at global level not only at local level only.
The need for a broader perspective: The vision and mission of various nations, cultures, environment etc. rather than a single nation, culture, environment.
More involvement in employees’ personal lives: Managing employees at various places and environment which are entirely different than each other
Changes in emphasis as the workforce mix of expatriates and locals varies: Cross functional and cross cultural teams for better efficiency of company.
Risk exposure: Human and financial consequences of failure in the international arena are more severe than in domestic business
Broader external influences: The type of government, the state of the economy and the accepted policies and procedures of the host countries
As a result of these complexities a company develops various challenges. These challenges are:
Standardised pay and conditions of employment
The company’s faces challenges for its employees like formulation of international compensation policies:
The policy should be consistent with the overall strategy and structure of the business needs of the MNC.
The policy must work to attract and retain staff where the greatest needs and opportunities are such as incentive for Foreign Service, tax equalization and reimbursements for costs.
The policy should facilitate the transfer of international employees in the most cost-effective manner for the organization.
The policy must give due consideration to equity and ease of administration.
South Africa has diversified employees that are they come from different environments and have experiences. It is very difficult to manage a corporation when they are in the same country or city. If companies pay and benefits are standardized throughout the world, it is likely that similar problems in other countries would be created in the working of employees.
Different approaches for managing staff
There exist two contrasting approaches for managing international HRM namely:
It is an approach in which values and practices of home country are preferred. These practices are then applied all over the world. The approach is easier than but in a long run may cost expensive.
Such approach has different management for different countries that is the management is apt to its local environment. The management is complex but is cheaper.
Geocentric: Where management takes the MNC as a single organization and encourages employees from all over the world to be promoted within the business.
Regiocentric: Managers look after regional sectors of the business ratherthan the global sector.
An I-HRM can only persist if company is MNC. Without a firm being MNC it cannot have I-HRM. And with firm being a multi-national it comes across various cultures. Culture diversity is the foremost challenge that a company faces.
The global pressure onSouth African organisations to stay globally competitive initiates changes.Competitors are demanding level playing fields across cultures.
Implications and Recommendations
I-HRM should not only focus on permanent employee but also on employee who migrate due to company. These employees are provided with little attention. It should be seen they are fairly compensated.
It can be difficult enough to manage various HRM practices indomestic individual companies let alone on a MNC basis, so many problems forthe international HR manager could potentially stem from this if integration is notdone sufficiently.
There are many issues such as political-legal, labour market, different cultures,language barriers and employment practices that are constraining MNCs seekingto standardise their original practices in the host country. The South Africaninternational HR manager should address these issues to comply with thecontexts of the host countries in order to have successful and sustainablebusinesses. Another issue to address is compensation for the expatriates. Theyshould introduce programmes, procedures and policies to ensure successful andsatisfied employees in their MNCs.
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