Domestic and International HRM
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Published: Thu, 21 Dec 2017
The world has become more globalised and more competitive than ever before, and as more firms begin to operate in the international marketplace there is an extensive search for different elements of competitive advantage (Beck, 2011). A major component of gaining an advantage over competitors could be in terms of human resource management and especially in international human resource management. The quality of management seems to be more critical in international, than domestic human resource management too, making it even more vital that firms are effective in this area (Monks et al., 2001). Human resource management “refers to those activities undertaken by an organisation to effectively utilise its human resources” (Dowling et al., 2008: 3). These activities include those such as staffing, performance management, compensation, training and development and human resource planning. Indeed, human resource management is key for any organisation. Ozbilgin et al., (2014) assert that human resource management is a function which encompasses the methods of compensating, appraising, training and selecting employees within an organisation, as well as complying with health and safety, labour and equal employment laws. International human resource management can be seen as the worldwide management of these human resources (Brewster and Suutari, 2005). Schular and Tarique (2007:717) claim that the field of international human resource management is concerned with “understanding, researching, applying and revising all human resource activities in internal and external contexts as they impact the processes of managing human resources”.
This essay will look at human resource management, and see what is similar and what is different when human resource management goes international. This is important due to the fact that there are many challenges in managing overseas activities for companies, and this is why the third section of this essay will be addressing the issue of best practice in international human resource management. Finally, the conclusion will draw these sections together to look at how the challenging aspect of international human resource management.
The similarities between domestic and international human resource management
This first section of the essay will look at the similarities between domestic and international human resource management. Human resource management is similar in both the domestic and international marketplaces as they have similar basic functions in businesses as mentioned within the introduction. All human resource functions have the key aim of to effectively utilising the human capital which is present within the organisation. Aswathappa (2008) asserts that human resource functions are basically the same whether they extend to several countries, or if they are specific to one single country. Regardless of the countries human resource managers are in, the HR manager still needs to plan the human resources, train and develop people, compensate them, hire the correct employees in the correct number, as well as maintain and motivate the workers in the company, and this still stands true whether or not this is in a domestic or global setting (Aswathappa, 2008).
As well as this, the environmental forces which impact upon the functioning of a human resource department are the same, depending on if the business is global or domestic (Aswathappa, 2008). These all include political, cultural, economic and legal external constraints, and they can influence the way that human resource functions “are carried out both in domestic as well as in global businesses” (Aswathappa, 2008: 67). It can be seen that a human resource function in a business has one overriding objective, which is ensuring the effectiveness of an organisation through interventions such as multiskil developments, team building, motivation, performance management and talent retention. Regardless of if the company is a multinational one operating in ten different nations, or a domestic business these activities are still present and are the key tasks and requirements of the human resource function, and as such still require effective management by human resource professionals. (Aswathappa, 2008).
The differences between domestic and international human resource management
After looking at the similarities, the differences between these forms of human resource management will now be looked at. International human resource management can be seen as being characterised by more “heterogeneous functions, greater involvement in employers personal life, different emphasis on managing training, and more external influences” (Alhafaji, 1995: 90). International HRM managers are needed to be even more diligent due to the fact there is usually greater dissatisfaction in a multinational environment than a domestic one (Alhafaji, 1995). Dowling et al., (2008) assert that they find the complexity of operating in different countries and having employees from a range of different national categories is one of the key variables in differentiating international human resource management from domestic human resource management. These result in six factors which contribute to this complexity; more HR activities, the need for a broader perspective, more involvement in employees personal lives, changes in the emphasis as employees consist of more expatriates who mix with locals, the exposure to risk and an increased range of external influences (Dowling et al., 2008). More human resource activities are needed in order to operate within an international environment, such as international tax, relocation and orientation as well as having more services for expatriates as well as language translation services (Dowling et al., 2008). These are all services which would not be necessary within the domestic market. There is also a need for a broader perspective as those HR managers who work in a domestic environment will normally administer human resource programmes for one national group of employees, these are all covered by one compensation policy and also taxed by the same national government (Dowling et al., 2008).
In terms of risk, there are also more human and financial consequences of failing within the international marketplace, as opposed to in the domestic market. Expatriate failure and the underperformance of employees on international assignments, for example, are very costly to international corporations. The cost of such employees is often three times as high as if they were to be working within their domestic market (Dowling et al., 2008). Keeley (2001) also asserts that there are difficulties in integrating host country national managers into the process of their subsidiaries that are abroad. In more recent times, major multinationals must now take into consideration the political risk as well as terrorism and the spending which is needed on protection against terrorism, in light of the 9/11 attacks in New York (Dowling et al., 2008). In International human resource management there are also more external factors, such as the types of government, the state of different economies and different generally accepted practices of doing business in the various companies where a multinational corporation may operate within (Dowling et al., 2008). International human resource management also has more involvement in the personal life of its employees. For example, it is necessary for human resources to understand every aspect of compensation packages provided in the foreign assignment, and the department would need to know the readiness of employee’s family to relocate, as well as supporting the family in adjusting to life in a foreign country (Dowling et al., 2008).
Harris et al., (2004) assert that another key difference is the cultural differences that are needed to be managed in international human resource management. With the increasing internationalisation of employment, employees in the same organisations now possess many different values and attitudes towards both work and their personal lives. There are many stereotypes inherent within these different cultures, such as Americans being work obsessed and the Japanese being overly polite (Harris et al., 2004). These national stereotypes show that different nationalities work in different ways, and it is therefore necessary that an international human resource manager has an awareness of these cultural differences, and that this can affect many different human resource functions such as recruitment and selection, as well as performance appraisal (Harris et al., 2004). Therefore, there needs to be care taken by international human resource managements on deciding whether to standardise the processes in human resource departments around the world, or choose to localise them dependent on the area even though this initial setup may be more costly and complex, but could be more effective in the long run.
Best practice in international human resource management
The need to develop best practice within international human resource management is becoming increasingly important, as more and more enterprises turn international and expand worldwide to tap into growing markets (Geringer et al., 2002). Stiles and Trevor (2006) attempt to identify the ways in which multinational organisations should manage their people in companies which are diverse in terms of the culture and geography that they encompass. This is because expanding internationally requires the attention of the company to have both global standards, as well as local market sensitivity, and this was seen as one of the marks of best practice within international human resource management (Stiles and Trevor, 2006). They move on to say that across all the organisations studied it was important to have rigorous and selection procedures, as well as training and development across all levels of the company, and developmental appraisal as well as performance linked pay (Stiles and Trevor, 2006). Other best practices included having flexible job design, team working as well as two way communications within the company. Values based employment practices were seen as important, and these enabled having a successful cultural fit of employees within the company, which increased commitment and retention in the organisation (Stiles and Trevor, 2006). Overall, it can be seen that when trying to achieve best practice within international human resource management, that it is important for organisations to focus on local knowledge, but with also ensuring there is a centralised “HQ-centric view of the world” in these departments too (Stiles and Trevor, 2006).
However, Stiles and Trevor (2006) conclude by saying that it is not enough for organisations to simply adopt best practice, or to attempt to develop innovative solutions in isolation. Instead, the formulation and execution of these needs to be aligned with business needs at all levels, both on a corporate level and locally. These also need to be not only integrated with other human resource practices but with all the various human, social and organisational elements in the organisation that effectiveness is dependent on. This can be seen as the responsibility of the leadership within the company, as leadership capability “is central to the effective management of human capital” (Stiles and Trevor, 2006: 52). As well as this, Marchington and Grugulis (2000) assert that searching for a best practice is problematic. This is because, according to their studies there are times when asserted best practices appear contradictory messages. This is due to the fact that human resource practices are not universally applicable. They move on to state that “in presenting the argument for the adoption of best practice HRM, the nature of the employment relationship itself is over simplified and distorted” (Marchington and Grugulis, 2000: 1121). Therefore it could be argued that there is no generic, one size fits all best practice of international human resources that can be applied to every multinational organisation. Instead, organisations need to consider how each process would impact and effect their specific company and its needs.
Human resource practitioners and researchers are becoming concerned with the shift towards more globalised businesses, and the impact that this has on international human resource management (Kiessling and Harvey, 2005). This is becoming even more of a pressing issue as multinational enterprises themselves have realised that human resource management can play an extremely important role in gaining and retaining a competitive advantage (Schuler and Jackson, 2005). It has been seen in this essay that there are a number of differences between international and domestic human resource management. These are differences which are large enough to have a sizeable and quantifiable impact upon an organisation if they are not taken into account. The main differences identified are the fact that there are a wide range of problems such as international taxation and dealing with expatriates and an assortment of different cultures in international companies that domestic human resource managers would not need to deal with. However, similarities still exist, and the main function of the human resource department, to effectively create organisational effectiveness through effective management of employees in the company, remains the same regardless of how many countries the company may operate in. It was also seen that there is no best practice in regards of international human resource management, due to the fact that companies are not the same in how they operate and the employees in them. Therefore, organisations need to consider how different policies and procedures would impact their employees before implementing them.
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