History of International Human Resource Management

Up until the 1960s, even firms operating internationally maintained organizational structures with centralised technical and managerial resources, manufacturing ability, and the access to and control of the capital (Doz & Prahalad 1981). As exports increased, it was seen as more attractive to establish sales subsidiaries in other countries, often staffing them with skilled personnel from the home country. These expatriates had the necessary product knowledge, and could even initiate local manufacture, but also had a perceived primary loyalty to the home company and country culture. Unfortunately, this was also an era of ‘convergence’ thinking (usually towards the dominant U.S. culture), with sometimes lamentably littleattention being given to national sensitivities and cultural beliefs and behaviours

With the developing internationalisation of many firms in the late 1960s and early 1970s, companies established overseas plants and entered joint ventures with foreign affiliates. Firms sought commercial success through moving closer to their customers by employing more host-country nationals. In some situations, they aimed at being perceived more as ‘local’ rather than ‘foreign’, for various reasons.

In the 1990s, not only has the practice of IHRM become more sophisticated, but research into its policy and practice has become established. It has a developing body of research and practice which is regularly considered at dedicated conferences, and published in general management as well as HRM journals.

Increasingly, international HRM is being taught in university faculties of business management courses, and management MBA graduates, as well as graduates in HRM, are now more frequently aware of the issues involved, and the functions of HRM in an international context.

International human resource management

What an HR manager does in a multinational corporation varies from firm to firm. It also depends on whether the manager is located in a global corporation’s headquarters or onsite in a foreign subsidiary.

What is IHRM? Actually, it is not easy to provide a precise definition of international human resource management (IHRM) because the mission of an HR manger in a multinational corporation (MNC) varies on a large scale. Generally speaking, IHRM is the effective utilization of human resources in a corporation in an international environment.

The term IHRM in most studies has traditionally focused on the area of expatriation (Brewster and Harris, 1999)

Broadly defined, international human resource management (IHRM) is the process of procuring, allocating, and effectively utilising human resources in a multinational corporation. If the MNC is simply exporting its products, with only a few small offices in foreign locations, then the task of the international HR manager is relatively simple. However, in global firms human resource managers must achieve two somewhat conflicting strategic objectives. First, they must integrate human resource policies and practices across a number of subsidiaries in different countries so that overall corporate objectives can be achieved. At the same time, the approach to HRM must be sufficiently flexible to allow for significant differences in the type of HR policies and practices that are most effective in different business and cultural settings.

This problem of balancing integration (control and coordination from HQ) and differentiation (flexibility in policies and practices at the local subsidiary level) have long been acknowledged as common dilemmas facing HR and other functional managers in global corporations. Although some argue that IHRM is not unlike HRM in a domestic setting, others point out that there are significant differences. Specifically compared with domestic HRM, IHRM (I) encompasses more functions, (2) has more heterogeneous functions, (3) involves constantly changing perspectives, (4) requires more involvement in employees’ personal lives, (5) is influenced by more external sources, and (6) involves a greater level of risk than typical domestic HRM.

When compared with domestic human resource management, IHRM requires a much broader perspective on even the most common HR activities. This is particularly so for HR managers operating from a MNC’s headquarters (HQ). The number and variety of IHRM activities are daunting. International HR managers must deal with issues as varied as international taxation; international relocation and orientation; various other administrative services for expatriates; selecting, training and appraising local and international employees; and managing relations with host governments in a number of countries around the world.

Even when dealing with one particular HR function area such as compensation, the international HR manager is faced with a great variety of national and international pay issues. For example, while dealing with pay issues, the HQ-based HR manager must coordinate pay systems in different countries with different currencies that may change in relative value to one another over time. An American expatriate in Tokyo who receives a salary of $100,000 may suddenly find the buying power of that salary dramatically diminished if the Japanese yen strengthens in value relative to the US dollar. A US dollar purchased 248 yen in 1985, but less than 110 yen in 2000.

In the case of fringe benefits provided to host company employees, some interesting complications might arise. For instance, it is common in the United States to provide health insurance benefits to employees and the employee’s family, which usually means spouse and children. In some countries however, the term “family” may include a more extended group of relatives-multiple spouses, aunts, uncles, grandparents, nephews, and nieces. How does the firm’s benefit plan deal with these different definitions of family?

A final aspect of the broader scope of IHRM is that the HQ-based manager deals with employee groups that have different cultural backgrounds. The HQ manager must coordinate policies and procedures to manage expatriates from the firm’s home country (parent country nationals, PNCs), host-country nationals (HCNs), as well as third country nationals (TCNs, e.g. a French manager working for an American MNC in the firm’s Nigerian subsidiary) in subsidiaries around the world.

Although such issues are important for the HQ-based manager, they are also relevant to the HR manager located in a subsidiary. This manager must develop HR systems that are not only acceptable to the host country but also compatible with company-wide systems being developed by his or her HQ-based counterpart. These policies and practices must effectively balance the needs and desires of local employees, PCNs and TCNs.

It is at the subsidiary level that the increased involvement of IHRM in the personal lives of employees becomes particularly apparent. It is not unusual for subsidiary HR managers to be involved in arranging housing, healthcare, transportation, education, and recreation activities for expatriate and local staff.

IHRM activities are also influenced by a greater number of external forces than are domestic HR activities. The HQ-based manager may have to set equal employment opportunity (EEO) policies that meet the legal requirements of both the home country and a number of host countries. Because of the visibility that foreign firms tend to have in host countries (especially in developing countries), subsidiary HR managers may have to deal with ministers, other political figures, and a great variety of social and economic interest groups than would normally be encountered in a purely domestic HRM.

Excerpt from ‘Human Resource Management’ by Cynthia D Fisher, Lyle F Schoenfeldt, James B Shaw. Published by Biztantra