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International Human Resource

Management: A Literature Review


Due to globalization, the economy around the world has been largely integrated. Many
corporations are expanding their markets into regions or other countries they have never touched
before. These corporations are experiencing an evolutionary stage: internationalization. It is clear
that effective human resource management of an organization is the major competitive advantage
and may even be the most important determinant of organizational performance. Thus, in order
to survive in the crucial global economic market, a multinational corporation (MNC) mainly relies
on the capability of its international human resource management (IHRM) during the
internationalization process. In other words, it is the IHRM's responsibility to enable the MNCs to
be successful globally.
Over the past several decades, practitioners and scholars have devoted great effort to explore the
field of IHRM and there have developed thousands of literatures which support the notion that
international human resource management is increasingly an important topic. Most of their focus
has been on IHRM issues in MNCs. Further, much of the literature deals specifically with managing
expatriates (Napier, 1998).This literature review is divided into five parts. First part provides a brief
introduction of the IHRM definition. In the second part, reasons for the increasing importance of
IHRM are explained. Then, the author introduces strategic IHRM and an integrative framework of
Strategic IHRM in MNCs

Definition of International Human Resource


Management (IHRM)
What is IHRM? Actually, it is not easy to provide a precise definition of international human
resource management (IHRM) because the responsibility of an HR manger in a multinational
corporation (MNC) varies from one firm to another. Generally speaking, IHRM is the effective
utilization of human resources in a corporation in an international environment. Scullion (1995:
p352) defined IHRM as "the HRM issues and problems arising from the internationalization of
business, and the HRM strategies, policies and practices which firms pursue in response to the
internationalization of business".
In most studies, the term IHRM has traditionally focused on expatriation (Brewster and Harris,
1999). However, IHRM covers a far wider spectrum than expatriation management. Four major
activities essentially concerned with IHRM were recruitment and selection, training and
development, compensation and repatriation of expatriates (Welch, 1994). Iles (1995) also
identifies four key areas in IHRM as recruitment and selection, training and development,
managing multicultural teams and international diversity and performance management. From
the perspective of worldwide people management, Hendry (1994) points out three main issues in
IHRM: 1) expatriation management and development; 2) the management internationalization
through the whole organization; 3) creating a corporate culture to internationalize the corporation
to fulfill the increasing need of inter-cultural interactions of doing business abroad and in home
country.

Recent definitions concern IHRM with activities of how MNCs manage their geographically
decentralized employees in order to develop their HR resources for competitive advantage, both
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subsidiaries and
locally
and
globally.
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functions
of IHRM,
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relationship between
headquarters, and the policies and practices are considered in this more strategic approach.
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Dowling, Schuler and Welch define IHRM as "a collection of policies and practices that a
multinational enterprise uses to manage local and non-local employees it has in countries other
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than their home countries (Dowling et al., 1993: p2)."

Due to the development of globalization, new challenges occur and increase the complexity of
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managing MNCs. IHRM is seen as a key role to balance the need for coordinating and controlling
oversea subsidiaries, and the need to adapt to local environments. Therefore, the definition of
Dissertations
IHRM has extended to management localization, international coordination, and the development
of global leadership, etc. (Gregerson et al., 1998; Scullion and Starkey, 2000).

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To sum up, IHRM should not become a description of fragmented responses to distinctive national
problems nor about the 'copying' of HRM practices, as many of these practices suit national
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cultures and institutions. Indeed, issues of concern in IHRM are those of consistency or
standardization within diverse social and cultural environments (Nankervis, Compton & Baird,
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2002).

Reasons for growing importance of IHRM

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In order to explore the field of IHRM, it is important to understand why there is gradual increase of
interest in International Human Resource Management. IHRM is of great importance at present for
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a number of reasons:

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Recent years have witnessed the rapid growth of globalization and international competition.
The
multinational corporations (MNCs) have increased in number and significance, which contributing
to the growing importance of the international role of human resource management (Black et al.,
2000).

It has been increasingly recognized that the effectiveness of human resource management
is one
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of the major factors to determine the success or failure of international business. There is also
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recognition that the quality of management in international operations seems to be more critical
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than in domestic operations (Black et al., 1999; Harris et al., 2003).
A growing shortage of managers with international exposure and experience is becoming an
increasing deficiency which affects a company's corporate efforts to expand abroad. Meanwhile,
the emerging markets require managers with distinctive competence and context-specific
knowledge of how to do business successfully in countries which are both culturally and
economically distantly. Thus, a larger role for IHRM activities in multinational corporations is
assigned (Black and Gregersen, 1999; Morgan et al., 2003).
The failure in international business arena is often costly both in human and financial terms, and
is proved to be more severe than that in domestic business. Companies need to take
precautionary measures to train and compensate human resources. This makes a full-fledged
IHRM necessary (Dowling et al., 1999).
HR strategy plays a significant role in the control and implementation in MNCs. It is not difficult to
determine which strategy to pursue for a MNC in an internationalizing environment. What
challenges is how to implement these strategies to be successful. Developing unique

organizational cultures is of far more importance than structural innovations in any global or
transnational strategy. To this extent, IHRM strategy becomes the crucial determinant of the
implementation and success of the MNC strategy (Bartlett and Ghoshal, 1998).
The complex nature of HRM problems involving in global environment is underestimated by some
companies. Poor management of human resource often results in business failures in
international business. Expatriate performance failure or underperformance continues to be
problematic for IHRM in many international corporations (Dowling et al. 1994).

Strategic IHRM
Under the global context, understanding how multinational Corporations (MNCs) can operate
more effectively becomes more important than ever. This links a MNC with the need of an
internationalized strategy which can direct its subsidiaries' operation not only in the home
country, but also in different parts of the world. There are several reasons to develop IHRM
strategy: 1) at any level, HRM is important to strategy implementation (Hamel & Prahalad, 1986;
Schuler and Jackson 2001); 2)major strategic components of multinational enterprises have a
major influence on international management issues, functions, and policies and
practices(Edstrom and Galbraith, 1977; Robers et al., 1998); 3) the attainment of the concerns and
goals of MNCs can be influenced by many of these characteristics of IHRM (Kobrin, 1992); 4) the
study of IHRM is challenging and important because there are a wide variety of factors making the
relationship between MNCs and IHRM complex(Bartlett and Goshal, 1998, 2000; Dowling et al.,
1999).
Schuler et al. (1993) define strategic IHRM as "human resource management issues, functions and
policies and practices that result from the strategic activities of multinational enterprises and that
impact the international concerns and goals of those enterprises"(P422). They developed a model
(see figure 1.) to examine the field of Strategic IHRM. The model shows the linkage of important
elements connected with IHRM, the importance of integration and differentiation of these
elements.

Exogenous Factors
Industry Characteristics
Country/ Regional Characteristics

MNC Concerns and Goals


Competitiveness
Efficiency
Responsiveness Flexibility
Transfer of Knowledge and learning

SIHRM Issues
Interunit Linkages

-control/ variety
Internal Operations
- Local sensitivity
/ Strategic fit

SIHRM Function
Orientation
Resources
Location

Strategic MNC Components


Interunit Linkages
Internal Operations

SIHRM Policies/
Practices
Staffing
Appraising
Compensating
Developing

Endogenous Factors
Structure of International operations
Headquarters international orientation
Competitive Strategy
Experience in Managing International
Operations
Figure 1. Integrative framework of Strategic IHRM in MNCs

In the model, two major strategic components of MNCs that influence Strategic IHRM are pointed
out: interunit linkages and internal operations. Regarding interunit linkages, multinational
enterprises are concerned with how to effective operate their various world-wide operating units.
In particular, the key objectives appear to be how these operating units are to be differentiated
and integrated, controlled and coordinated. For strategic IHRM, the issues associated with
integrating and coordinating an MNC's units represent a major influence on strategic IHRM issues,
policies and practices (Schuler et al., 1993). With respect to internal operations, they require the
same attention as the linkage of the units, since they all influence MNC effectiveness. Each unit has
to be operated as effectively as possible relative to the competitive strategy of the MNC and the
unit itself (Schuler et al., 2002).
It has been argued that the success of strategic IHRM in a MNC is largely influenced by the quality
of it human resources and how effectively the corporation's employees are managed (Bartlett and
Goshal, 1992). There are three approaches which describe how multinational companies manage
the human resources and their overseas subsidiaries: ethnocentric, polycentric and geocentric.
Eethnocentric Approach
This practice usually happens in the early stage of a firm's internationalization involvement. With
this approach, strategic decisions are all made by the headquarters and the management
practices are transferred to the subsidiaries. Most important positions are filled by parent-country
nationals (PCNs).As a result, little autonomy is given to overseas operating units. During this stage,
home country expatriates exercise tight control.
Polycentric Approach
When the strategy becomes polycentric, there is a marked decline in the number of PCNs sending
abroad and their role changes into communication and coordination of strategic objectives. Hostcountry nationals (HCNs) are recruited to manage the operating units in their own country
because local managers know more about the local circumstances and are more familiar with local
business ethics. More autonomy is given to local managers to develop their own management
practices appropriate for the subsidiary.
Geocentric Approach
This approach relates most closely to the global or transnational strategy. Selection of employees
is based on competency rather than nationality. The best of headquarter and local practices are
combined by MNCs in order to come up with a global-implemented HR strategy.
Most MNCs take the IHRM strategy as a guideline and implement it locally. It is therefore the HR
managers' responsibilities to provide the proper international HR strategy to prepare and manage
the employees in their home country or an international assignment.

IHRM and Culture


Different cultures of various countries and MNCs are one of the most important and difficult
challenges to the conduct of IHRM. National and organizational cultures differentiate from one
country and firm from those of another. Often these differences clash when companies conduct
business in multinational environment. Cultural differences across countries can influence people
in their work environment (Harzing & Ruysseveldt, 2004).

Hofstede (1984) defines culture as "collective programming of the mind which distinguishes the
members of one human group from another" (Hofstede, 1984: P21). It is important to understand
peoples' different cultural backgrounds to be able to identify the consequences for international
management. According to Medich (1995), culture is a crucial variable in international assignments
and should be included in international management practices (Medich, 1995). As it is claimed by
Briscoe and Schuler (2004) that "knowledge about and competency in working with country and
company cultures is the most important issue impacting the success of international business
activity" (Briscoe and Schuler, 2004: P114), understanding various values, beliefs and behaviors of
people are essential aspects of success for doing business internationally.

Understanding Culture as Layers of Meaning


The multiple layers of meaning of "culture" are one of the complexities that make it so difficult to
manage. There are a large number of readily observable characteristics (such as food, art, clothing,
greetings and historical landmarks) that differ obviously from other countries or operations.
Sometimes these are referred as manifestations of underlying values and assumptions which are
much less obvious.
One way to understand this complexity is explained by the layers of culture model (see Figure 2).
The model represents culture as a series of layers. Moving from outside to inside, each layer
represents less and less explicit values and assumptions while the values and assumptions
become more important in determining the attitudes and behaviors.
Surface Culture
Hidden Culture
Invisible Culture
Figure 2. Model of Culture Layers
The outermost layer, which is called the surface layer, corresponds to readily visible values and
assumptions, like dress, body language and food. The middle layer or the hidden culture layer
corresponds to religions, values and philosophies concerning for example what is right and wrong.
The invisible layer at the core represents one culture's universal truths, which is most difficult for
foreigners to understand (Briscoe & Schuler, 2004). According to Harzing and Ruysseveldt (2004)
there exist different cultural dimension among different cultures. These cultural dimensions have
been identified and one frequently cited work from a well-known researcher within this cultural
dimension field is Geert Hofstede.

Hofstede's cultural dimensions


Hofstede have identified five cultural dimensions for which each country could be classified in.
These five dimensions are power distance, uncertainty avoidance, individualism versus
collectivism, masculinity versus femininity, and long-term versus short-term orientation (Hofstede,
2001). Power distance indicates the level of inequality in institutions and organizations. A country
with large power distance is characterized by formal hierarchies and by subordinates who have
little influence in their own work and where the boss have total authority. Uncertainty avoidance
focuses on the level in which people in a certain country tolerate uncertainty and ambiguity within

the society. High uncertainty indicates that the country has a low tolerance for uncertainty and
ambiguity. This will inevitably create a society which is rule-oriented, which institutes laws,
regulations and controls to diminish the amount of uncertainty (Hofstede, 1984).
Individualism versus collectivism refers to the degree where people prefer to take care of
themselves, and making their own decisions rather than being bound to groups or families. A
highly individualistic society consists of usually impersonal and loose relationships between
individuals, while a low individualistic society has more tight relationships between individuals,
hence referred to as collectivism by Hofstede (1984). The masculinity versus femininity dimension
describes if a culture are bound towards values that are seen as more similar to women's or men's
values. Masculinity is characterized by stereotype adjectives such as assertiveness and
competitive, while the femininity is characterized by modesty and sensitivity. A high masculinity
ranking indicates the country experiences a high degree of gender differences, usually favoring
men rather than women. The fifth and last cultural dimension is long-term versus short-term
orientation. A long-term oriented society emphasize on building a future oriented perspective in
contrast to the short-term oriented society which values the present and past (Hofstede, 2001).

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