1

INTERNATIONAL HUMAN RESOURCE

MANAGEMENT

Under guidance of:

Prof. I. Banerjee
Dept. Of Marketing
XISS

POST GRADUATE DIPLOMA IN MANAGEMENT

IN

MARKETING MANAGEMENT

DEPARTMENT OF MARKETING

XAVIER INSTITUTE OF SOCIAL SERVICE

DR. CAMIL BULCKE PATH
RANCHI-834001
(2013-15)

PREPARED BY
MARKETING -1
SUB -HUMAN RESOURCE MANAGEMENT
2ND TRIMESTER

RAHUL ANAND- 22
JOYDEEP DAS - 36
MUKESH KUMAR- 44
ANUPAM PRAKASH NIKHIL 51
PRINCE KUMAR PANDEY 59

ABSTRACT

With globalization the world has become a market rather than just ones premises.
Hence managing the man power is a task that needs to be understood on a global
basis. Man power must be managed just not nationally but also internationally. But
doing that is not that simple as one has to follow international norms and protocols for
managing an organizations human resource. This paper deals with the process,
policies and concepts dealing with International Human Resource existing in todays
world. The objectives, purpose, dimensions and limitations of International human
resource management are few areas covered here. Besides a distinction between
domestic and international HRM is also covered in this paper

Keywords: International human resource, objectives, dimensions, limitations and

domestic

TABLE OF CONTENTS
CHAPTER NO.

TITLE

PAGE No.

ABSTRACT
1.

INTRODUCTION

iii
5

1.1 Definition Of IHRM

1.2 Dimensions of IHRM
1.3 Purpose of IHRM

2.

OBJECTIVES
2.1 Objectives of IHRM

2.2 Difference between domestic HRM and IHRM

2.3 Variables that moderate differences between IHRM and
domestic HRM

3.

INTERNATIONAL STAFFING

11

3.1 International Staffing Policies

3.2 Classification of international staffing
3.3 Advantages and disadvantages of using PCNs, HCNs
3.4 Factors influencing the choice between HCN and PCN
3.5 Why do companies assign employees abroad? Edstrm and
Galbraiths typology

4.

INTERNATIONAL BUSINESS

16

4.1 Significance of IHRM in International Business

4.2 Major Issues in International HRM
4.3 Role of International HRM:
4.4 Limitations of IHRM

5.

BIBLIOGRAPHY

19

CHAPTER 1
1. INTRODUCTION
The advent of the era of liberalization and globalization along with the advancements
in information technology (IT) has transferred the world around us. It has brought to
centre stage the importance of human resources, more than ever before. The purpose
of human resource management (HRM) is to enable appropriate deployment of human
resource so that the quality culture can maintain and satisfy the customers not only in
national level but to in global level.
In a competitive scenario, effective utilization of human resources has become
necessary and the primary task of every organization is to identify, recruit and channel
competent human resources into their business operations for improving productivity
and functional efficiency.
Emergency of trade blocks with the formation of different economic and political
forums like European Union, North American Free Trade Association, Asia Pacific
Economic conference and expanding role of World Trade Organization have now
significantly changed the business environment in terms of competition / liberalization
and open end marketing opportunity. Business environment become global business
environment.
Internalization of business now experts influence not only on labour markets and
staffing requirements but also on HR practices. Multi domestic operations (MDOs),
Joint Ventures (JVs) and strategic Alliance (SA) are common forms of business
structures across regions. Changes in organizational structures, relationships with
overseas operations, state of the art communications technology and global
market now demand different HR approaches for managing MNCs. Globalization of
business has probably touched the HR managers more severely than any other
functional heads. The HR executives needs to give international orientation to what
ever he or she does employee hiring, training and development, performance review,
remuneration, motivation, welfare, or industrial relations. International orientation
assumes greater relevance as business get increasing interlinked across nations.
Since an international business must procure, motivate, retain, and effectively utilize
services of people both at the corporate office and at the foreign plants, therefore, the
process of procuring, allocating and effectively utilizing human resources in an
international business is called International Human Resource Management.
1.1 DEFINITION OF IHRM
The HRM issues and problems arising from the internationalizing of business, HRM
strategies, policies and practices which firms pursue in response to the
internationalization of business.
International human resource management is all about the world wide management of
human resources Process of sourcing, allocating, and effectively utilizing their skill,
knowledge, ideas, plan and perspective in responding to TQM. International Human
Resource Management is the process of sourcing, allocating and effectively utilizing
human resources in a multinational organization.

1.2 Dimensions of IHRM:

According to P.V. Morgan: IHRM is the interplay among 3 dimensions:
HR Activities
Types of employees
Types of Countries

Fig:1 Dimension Model of IHRM.

1) Broad activities of IHRM procurement, allocation and utilization of human

resources cover all the six activities of domestics HRM i.e, HR planning, Employees
Hiring, Training and Development, Remuneration, Performance Management and
Industrial Relations.
2) The national or country categories involved in IHRM activities are:

The host country where subsidiary may be located.

The home country where the company has its headquarters.
Other countries that may be sources of labour or finance.

3) The three types of employees of an international business are

Parent Country Nationals (PCNs)

Host Country Nationals (HCNs)
Third Country Nationals (TCNs)

For example, IBM which employs Australian citizens in its Australian operations, after
sends US citizens to Asia Pacific countries on assignment, and may send some of its
Singaporean employees to its Japanese operations.

1.3 PURPOSE OF IHRM

International human resource management (IHRM) is about the worldwide
management of human resources. The purpose of international human resources
management is to enable the firm, the multinational enterprise (MNE), to be successful
globally. This entails being: (a) competitive throughout the world; (b) efficient; (c)
locally responsive; (d) flexible and adaptable within the shortest of time periods; and
(e) capable of transferring learning across their globally dispersed units.
These requirements are significant, and the magnitude of the reality is indisputable: for
example, a substantial majority of industries in North America and Europe are under
full-scale attack by foreign competitors. On the other hand, most of the emerging
markets are now bombard by foreign direct investments (FDIs) by the MNEs of
developed
nations.
IHRM for many firms is likely to be critical to their success, and effective IHRM can
make the difference between survival and extinction for many MNEs. Yet, for reasons
of cost, time, and difficulty, IHRM research has been limited and largely focused on a
few issues. Calls are now being made to advance our understanding of this important
area in several ways, including: 1) developing models and frameworks to reflect the
complex set of environmental factors that impinge upon the global management of
human resources researching international human resource activities in a way that
recognizes their systematic interaction and 3) utilizing more theoretical perspectives to
predict and explain relationships

CHAPTER 2
2.1 OBJECTIVES OF IHRM
To understand

Types of international business operations.

How international HRM differs from domestic HRM.
The reasons for increasing importance of international HRM.
The importance of managing cultural differences for the success of international
business operations.
The approaches to managing and staffing subsidiaries of multinational
organizations.
The international HR practices.

2.2 DIFFERENCE BETWEEN DOMESTIC HRM AND IHRM

One obvious difference between domestic and international HRM is that staff are
moved across the national boundaries into various roles within the international firms
foreign operations these employees have traditionally been called expatriate. An
expatriate is an employee who is working temporarily residing in a foreign country.
However, as pointed out by Dowling (1999) domestic HRM is involved with employees
within only one national boundary; on the other hand IHRM deals with 3 nationals or
country categories (expatriate): PCN, HCN and TCN. So, broadly there are two major
factors therefore which differentiate domestic HRM from IHRM.
1. The complexities of operating in different countries / cultures.
2. Employing different nationals and different categories of workers across boarder. It
has been also argued by Dowling (1999) that the complexities of IHRM can be
attributed to six factors that differentiate international from domestic HRM.
Theses are:
1. A wide range of HR activities

The need for a broader perspectives.

More Involvement in employees personal life.
Responsiveness to changes in staffing requirements as international
strategy changes.
Higher risk exposure
More external influences.

However, the international dimension brings with it a host of issues, which the
domestic HR functions would not normally get involved in. The practice of HRM in the
international context is different from its domestic counterpart in a number of ways.
These include:

Being responsible for a greater number of functions and activities such as

selection, training and management of international assignees.
Having to expand ones area of expertise to include a much broader knowledge
of foreign country employment laws and global organization designs.

Having to get much more closely involved with employees lives as the firm
moves employees to foreign assignments. For example, collecting information
and furnishing to visa authorities about aids or material status of employees.
Being involved with greatly expanded and constantly changing mix of
employees (from the host countries and foreign locals), adding considerable
diversity and complexity to the HR tasks.
Having no cope with more external influences; for example, having to consider
the impact of foreign cultures and laws.
Having to face greater exposure to problems and liabilities (for example,
making mistakes in expatriate assignments can cost as much as US$4 million
per assignee). The accumulated direct and indirect costs can be huge.
Additional responsibilities like translation of language, both at headquarters and
at the subsidiary level, organizing schooling and housing for expatriates and
providing administrative services.
Management of differential compensation due to variety of allowances and
adjustments.
More emphasis on activities like international relocation and orientation, both
pre departure and post departure cultural training. Knowledge of international
taxation, rate of inflation and cost of living, including currency fluctuation.
Diversity management, like managing people from different cultural and political
backgrounds and gender differences.
More contacts with Government officials for obtaining visas, work permits, tax
certificates, fixing of meetings and so on.
More coordination and travel to assess performance of expatriates and solve
problems.
More risk management as threats from terrorists, Kidnappers and protecting
intellectual property rights of firms.
More risk management as threats from terrorists, kidnappers and protecting
intellectual property rights of firms.
More public relations work to enhance the multinationals image and deal with
human rights and other NGOs and interest group operating in different
countries.

10

Table 1.1 Difference between IHRM and Domestic HRM

2.3 VARIABLES THAT MODERATE DIFFERENCES BETWEEN IHRM AND

DOMESTIC HRM
Attitudes
of senior
managem
ent
Extent of
reliance of the
multinational
on its homecountry or
domestic
market

The
Cultural
Environm
ent

Domestic
and
Internation
al activities
of the HRM
function

Complexity
involved in
operating in
different countries
and employing
different national
categories of
employees

The industry
within which
the
multinational
is primarily
involved

Figure:2.1 Showing relationship between IHRM and Domestic HRM with other
variables.

11

CHAPTER 3
INTERNATIONAL STAFFING
3.1 International Staffing Policies:
Perlmutter (1969) identified three different international orientations that have become
the standard way to describe MNC staffing policies.
(i)

Ethnocentric: MNCs following an ethnocentric staffing policy would appoint

mostly parent country nationals to top positions at their subsidiaries
Polycentric: MNCs following a polycentric staffing policy would prefer to
appoint host country nationals
Geocentric: Firms with a geocentric staffing policy would simply appoint the
best person, regardless of his/her nationality and that could include third
country nationals (TCNs), nationals of a country other than the MNCs home
country and the country of the subsidiary.

(ii)
(iii)

In a later publication, Heenan and Perlmutter (1979) defined a fourth approach, which
they called Regiocentric. In this approach, managers are transferred on a regional
basis, such as Europe, and it often forms a mid-way station between a pure
polycentric/ethnocentric approach and a truly geocentric approach. It is important to
note that these staffing policies apply to key positions in MNC subsidiaries only.
Although some PCNs or TCNs might still be found at middle management, MNCs
normally appoint host country managers at this and lower levels.
3.2 Classification of international staffing:
Table 1.2
Nationality of employee is the
Parent country same
e.g. a German employee
national (PCN) as that of the headquarters of the working at the Chinese
multinational firm
subsidiary of Volkswagen

Host country
national (HCN)

Third country
national (TCN)

Nationality of employee is the

same
e.g. a Chinese employee
as that of the local subsidiary
working at the Chinese
subsidiary of Volkswagen
Nationality of employee is neither
that of the headquarters nor the
local subsidiary

e.g. an Indian employee

working at the Chinese
subsidiary of Volkswagen

Indeed, irrespective of the specific approach chosen in a given MNC the staffing

12

decisions are usually initiated centrally and then imposed on the foreign units by the
HQ. In this regard, Novicevic and Harvey (2001) call for a pluralistic orientation in
which subsidiaries are given more autonomy and flexibility in the staffing process. This
pluralistic orientation would consist of multiple, diverse and possibly competing
orientations of subsidiary staffing that operate independently within the MNC context
and requires coordinating mechanisms such as the socialization of key MNC staff.
The term expatriation is often used to describe the process of international
transfer of managers. Although the term expatriate could literally be taken to mean any
employee that is working outside his or her home country, it is normally reserved for
PCNs (and sometimes TCNs) working in foreign subsidiaries of the MNC for a predefined period, usually 2-5 years. It is common to use the generic term international
assignee to refer to any person that is relocated internationally.
3.3 Advantages and disadvantages of using PCNs, HCNs :
Table 1.3
Advantages

PCNs
familiarity with the home office's
goals, objectives, policies and
practices technical and managerial
competence
effective liaison and communication

with home-office personnel

easier exercise of control over the
subsidiary's operations

Disadvantages

difficulties in adapting to the foreign

language and the socioeconomic,
political,
cultural
and
legal
environment
excessive cost of selecting, training
and maintaining expatriate managers
and their families abroad
the host countries' insistence on
localizing
operations
and
on
promoting local nationals in top
positions at foreign subsidiaries
family
adjustment
problems,
especially
concerning
the
unemployed partners of managers
HCNs
of
the
subsidiary's
operation
familiarity with the socioeconomic,
political and legal environment and with
business practices in the host country
difficulties in exercising effective
lower cost incurred in hiring them as
control
over
the
subsidiary's
compared to PCN and TCN
operation
provides opportunities for advancement
communication difficulties in dealing
and promotion to local nationals and,
with home-office personnel
consequently,
increases
their lack of opportunities for the home
commitment and motivation
country's
nationals
to
gain
responds effectively to the host
international and cross-cultural
country's demands for localization
experience

3.4 Factors influencing the choice between HCN and PCN :

Parent
country/company
+ Level of Uncertainty
Avoidance
+
Cultural
distance
between
parent and host country
+ Size of the company

Industry
+ Banks & banking
services
+ Security & commodity
brokers
+ Printing & publishing
- Advertising agencies
- Computers & office
equipment
Electronics
&
equipment

[+ R&D intensity]

- Food & related products

Host country
-

Education level
+Political risk
- Cost of living higher than
parent company

Likelihood of PCN
in managing
director position at
foreign
subsidiaries

Subsidiary
characteristics
-

Age
Acquisition
+ Majority ownership
- Reporting distance from
HQ + Size
- Performance

* (+) denotes a positive relationship. Example: + Size = The larger the organization
the higher is the likelihood that a PCN holds the managing director position in its
foreign subsidiaries.
With regard to parent country/company characteristics, MNCs from countries
with a national culture that scores high on uncertainty avoidance (Hofstede, 1980,
2001) have a higher tendency to employ PCNs as managing directors for their
subsidiaries. There is often suspicion towards foreigners as managers and a view that
initiative arising from subordinates should be kept under control. Managers are
expected to be experts in their fields and generally are selected based on seniority
(Hofstede, 1980, 2001). These characteristics usually point to a trusted PCN as the
preferred alternative for senior positions in subsidiaries. Direct control of subsidiary
operations will also be more important if the level of cultural distance, or institutional
distance (Gaur, Delios, & Singh, 2007) between home and host country is high. In this
case, HQ managers might not trust the information they receive from local managers.
Additionally, HQ managers might fear that local managers are less committed to the
company. However, Gong (2003a) found that the reliance on PCNs in cases of high
cultural

distance weakens over time, suggesting that MNCs longer presence in a host country
may lead to the development of trust relationships with HCNs and thus a reduced need
to deploy PCNs. Furthermore, communication between people from different cultural
backgrounds can be very difficult (even if they speak the same language) and the
opportunity for misunderstanding is usually high .Therefore, HQ managers will prefer to
have at least some home country managers in important positions to facilitate the
information flow.
3.5 Why do companies assign employees abroad? Edstrom and Galbraiths
typology
There are few theoretical means of clarification or concepts regarding the motives for
international transfers. At first sight, the study by Edstrom and Galbraith (1977) is the
only one that theoretically explains why international transfer of managers occurs.
They propose three general company motives for making this type of transfer. The first
was to fill positions, which concerns the transfer of technical and managerial
knowledge. This motive is quite important for developing countries, where qualified
local nationals might not be available, but specific knowledge transfer might be
necessary to subsidiaries in developed countries as well. Expatriates can be seen as
the key bearers of tacit knowledge. The second major motive is management
development. The transfer gives the manager international experience and develops
him/her for future important tasks in subsidiaries abroad or with the parent company.
This kind of transfer would be carried out even if qualified host-country nationals were
available. For the third motive for international transfers, the final goal is not individual
development but organization development. This motive consists of two elements:
socialization of both expatriate and local managers into the corporate culture and the
creation of a verbal information network that provides links between subsidiaries and
HQ.
The classification of Edstrom and Galbraith is well accepted in the literature on
international transfers. Virtually every publication that deals with this topic refers to
Edstrom and Galbraiths now classic 1977 Administrative Science Quarterly article.

CHAPTER 4
INTERNATIONAL BUSINESS
4.1 Significance of IHRM in International Business:
Scullion (2001) outlined 10 major significance of IHRM in globally business
environment. This significance can categorised in 5 key areas:

CHALLENGE

CONGRUENC
E

COMPETENC
E

Significanc
e
of
IHRM

COMMITMEN
T

COST
EFFECTIVEN
ESS

Fig: Showing significance of IHRM in International Business

CHALLENGE:

Rapid growth of internalization and global competition has increased the nos.
and significances of MNCs resulting in the increased mobility of human
resources.

Increasing no. of strategic alliances and cross border mergers and acquisitions
has increased the strategic implementation of IHRM as Global business.

COMMITMENT:

World wide recognition of management of human resources in international

business and cross cultural management.

Business Networks and Horizontal communication and HR plays a vital role.

COST EFFECIVENESS:

The performance of expatriates. (poor performance of expatriate may affect the

market share and damage to foreign relations)
Growing Importance of Expatriates in International Business.

COMPETENCE:

Global Strategy Implementation. Success or failure of international business

based on effectiveness of management of HR.

CONGRUENCE:

Learning, knowledge acquisitions have been identified as important potential

sources of comp. advantages for MNCs. This has also enhanced the role of
IHRM to meet the key strategic challenge of objectives.

Knowledge management is an important source of comp. advantage for MNCs,

where IHRM is the key partner and plays a central role.

4.2 Major Issues in International HRM:

According to Hendry (1994), there are three main Issues in IHRM:

The management and development of expatriates- selection, training,

compensation and repatriation of expatriate failures.

The internationalization of management throughout the organization (host

country, parent country and other third countries).

The need to internationalize the whole organization by creating a new corporate

culture reflecting the need for greater international experiences across the
whole organization, due to the increasing frequency of cross cultural interactions
of doing business at home as well as abroad mainly Cultural communication &
gauge and Language and communication.

4.3 Role of International HRM:

International human resource management is the basis of success of any global
multinational organization. International HRM enhances employees effectiveness to
achieve goals of the organization and meet the needs; to develop employees to
assume more diverse tasks, assignments, face challenging situations and better
understand the cultural variations across the nations.
IHRM department deals with heterogeneous functions and has to give additional focus
on various aspects, such as:

More involvement in the employees personal life.

Deal with different groups of employees i.e. PCN, HCN and TCN for which HR
policies and practices may differ. International HR managers have to understand
cultural differentiation in multicultural environment.

Manage external influences, i.e host government authorities, business and other
interest pressure and labour groups, etc.
Lay different emphasis on management training to deal diverse workforce, their
orientation and to meet international environment.
Provide guidance on taxation and compensation aspects.

4.4 Limitations of IHRM

Management is basically the principle based on local cultures,

traditions, practices and needs of the organizational growth. It is not
universal for everywhere, specially in the field of human resources
management.

HRM methods and systems developed by one society can not always
be transferred and applied to another.

HRM and industrial relations practices differ across countries as these

have their historic origin in countries.

Personnel management and industrial relations are embedded in

societal rules, norms, values, ideologies and no MNC can afford to
ignore the influence of local culture.

Conclusion:
Thus it has been observed that effective internationalization of human resources
management and IRs remains bleak. The degree of adaptation on International HRM
to local customs in various subsidiaries of MNCs will be remaining on the strategic
agenda and managing International HR activities is an elaborate and complex task for
todays manager.

BIBLIOGRAPHY

1. INTERNATIONAL HUMAN RESOURCE MANAGEMENT, Dr. Shyamal Gomes

2. INTERNATIONAL HRM: AN OVERVIEW, Robert Kase.

3. FUNDAMENTALS OF HRM, Noe & Hollenbeck