International Human Resources

Management

Introduction

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 IHRM ?
changing characteristics of HR in an
international context
planning, recruiting and selecting
developing and rewarding
evaluating performance and dismissing

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 Terms

HRM NAFTA
IHRM UNCTAD
HCN
PCN
TCN
MNE
culture shock expatriate
emi-etic distinction
inpatriate
Interrelationships between Approaches to the Field

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Multinational Enterprise (MNE)

a firm which owns or controls business

activities in more than one foreign
country

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 Defining HRM

An organization’s HRM activities include

 human resource planning

 staffing (recruitment, selections, placement)
 performance management
 training and development
 compensation (remuneration) and benefits
 industrial relations
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A Model of IHRM

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 Defining IHRM

The interplay among these three dimensions in

Figure 1.2

human resource activities

type of employees
countries of operation

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Introduction to International Human
Resource Management
How the world is changing,
Importance of globalization,
IHRM as a key factor in the success of
international business.
An overview of domestic HRM and
discussion on what is different in IHRM.
Three Approaches to IHRM
Cross-cultural management
◦ Examine human behavior within organizations
from an international perspective
Comparative HRM and Industrial Relations
◦ Seeks to describe, compare and analyze HRM
systems and IR in different countries
HRM in multinational firms
◦ Explore how HRM is practiced in
multinationals

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Defining Expatriate

an employee who is working and

temporarily resigning in a foreign country

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International Assignments Create Expatriates (Figure
1.3)

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Defining Inpatriate

transferof subsidiary staff into the parent

country (headquarters) operations

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Differences Between Domestic HRM and
IHRM

IHRM complexity can be attributed to six factors

 more HR activities
 the need for a broader perspective
 more involvement in employee’s personal lives
 changes in emphasis as the workforce mix of
expatriates and locals varies
 risk exposure
 broader external influences

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 More HR Activities
International
taxation
relocation and orientation
expatriate administrative services
host government relations
language translation services

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 More Involvement in Employee’s
Personal Lives
Ensure expatriates understand
housing arrangements
healthcare
compensation (cost-of-living allowances,
premiums, taxes)
visa requirements
schooling

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Variables that Moderate Differences Between
Domestic and IHRM

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 The Cultural Environment

Defining culture

a shaping process overtime that generates relative

stability, reflecting a shared knowledge structure
that accentuates variability in values, behavioural
norms, and patterns of behaviour.

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Forces for Change
Global competition
Growth in mergers, acquisitions and
alliance
Organization restructuring
Advances in technology and
telecommunication

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Impacts on Multinational
Management
Need for flexibility
Local responsiveness
Knowledge sharing
Transfer of competence

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Managerial Responses
Developing a global “mindset”
More weighting on informal control
mechanisms
Fostering horizontal communication
Using cross-border and virtual teams
Using international assignments

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Important lessons for global firms
The need to manage change
The need to respect local cultures
The need to understand a corporation’s
culture
The need to be flexible
The need to learn

Copyright 2003-2006, Chris Chan 22

Factors that Influence the Global
Work Environment

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 Manager can be hired from three groups:
Parent country nationals, host country
nationals, and third country nationals. Parent
country nationals (PCNs) are residents of the
international business’s home country who are
transferred to one of its foreign operations.
Host country nationals (HCNs) are residents
of the host country, and are the most common
choice for mid-level and lower level jobs.
Employing HCNS are popular because they
are already familiar with local laws, culture,
and economic conditions.
Third country nationals (TCNs) are citizens
of neither the firm’s home country nor of
the host country. TCNs are most likely to
employed in upper-level or technical
positions.
“TCNs and PCNs are collectively known
as expatriates (people working and residing
in countries other than their native
country)”.
 ISSUES IN IHRM:
 Managing International assignments

 Employee and family adjustment

 Selecting the right person for a foreign assignment

 Culture, communication

 Language and communication

Barriers To Effective Global HRM:
Variations : this is due to the world wide variations in
social, political, and economic circumstances. An HR
practice that works in one country may be unacceptable in
another. Fluctuations in currency, government regulations
compensation expectations, job security, and learning styles
are just few examples of the local variations a global HR
professional faces.
 Perception of HR : Another global challenge is that the
perceived value of HR function varies across locations. In
one country , HR may be perceived as a true business
partner, working with high level managers on critical
strategic assessments. In another Country but within the
same company, HR may be viewed as a transactional
personnel department that handles administrative work.
Attitude and actions of headquarters toward HR: These
help determine how seriously the HR function is viewed
locally.
Resistance to change : different locations have their own
way of doing things and resisting change. If an HR
initiative that is viewed as a corporate is imposing on the
local HR staff, then it can be difficult to gain acceptance
from the field.
Cultural difference in learning and teaching style
Understanding Culture
 According to Peter Drucker, if management
is an organ of society, culture is its very
nature.
Therefore ,for organizational excellence,
management must take care of the
sensitivities of societal culture.
“According to Adward Taylor culture is that
complex whole which includes knowledge,
belief, art, morals, law, custom and other
capabilities acquired by man as a member
of society.”
Elements of Culture: Important cultural elements are
values, norms, attitude, folkways and customs.
 Values provide the context within which a society’s norms are
establisher and justified. They may include a society’s attitude
towards such concept such as individual freedom, democracy,
truth, justice, honesty, loyalty, social obligations, collective
responsibility, marriage, gender as so on. People argue , fight
and even die for values.
 Norms are further sub divided into two major categories:
Folkways and Mores.
Folkways are actions of little moral significance. Rather, they
are social conventions concerning things such as the appropriate
dress code in a particular situation, good social manners, eating
with correct utensils, neighborly behavior etc.
people who violate folkways may be thought of as eccentric or
ill mannered, but not evil or bad ones.
 Mores are norms that are seen as central to the functioning of
a society and to its social life. They have much greater
significance than folkways. Accordingly, violating mores can
bring serious retribution and punishment. Mores include such
factors as indictments against theft, adultery, etc.
 Cultural Traits are unique aspects of individual cultures. A
cultural traits may be a customs such as men opening the door
for women, a gesture of Namaste or an idea such as
existentialism, which clearly distinguishes a particular culture.
 Enculturation is the process of acquiring cultural traits. One
acquires cultural traits naturally within one’s culture. However,
culture can also be acquired in other ways such as contact with
other cultural groups or living abroad or marriage to someone
from another culture or even by training.
 Diffusion is the process through which cultures change. Each
society borrows cultural traits from others, particularly if a
 newly learned trait seems better than a traditional one.
New scientific discoveries, innovative technology, and
current media events and films cause cultural change.
However, some sectors of society resist such changes. This
is known as cultural lag.
If contacts between societies are prolonged,
acculturation may occur. Traits that have been borrowed
permanently adopted. For example, Mughal rule in India
changed many customs of Hindu society.
Assimilation occurs when immigrants or other newcomers
adopt the culture of the society in which they have settled.
When people leave their own culture to enter another, they
must fight with unfamiliar and unpredictable events,
relationships and objects. Some of this may cause a
phenomenon called cultural shock.
Convergence of Cultures :
 Improvement in transport and communications and a huge
increase in number of people, who visit foreign country
 Globalisation of media, with similar or even same television
programmes newspapers and magazine articles appearing in
all nations.
 Similarities in the tastes and consumption patterns of young
people
 The operation of multinationals across the world, supplying
standardized products and frequently using undifferentiated
marketing strategies.
 A seemingly worldwide increase in consumer’s willingness
to accept fresh ideas and try new products.
 Adoption of similar technologies in several countries, creating
common work experience and working method.
Culture change
Apart from convergence of culture, national cultures
change over time, possibly in consequence of following
factors:
 Rising livings standards
 Urbanization of population
 Immigration and emigration, especially if the population
coming in has a different religion and lifestyle than
members of the existing population.
 Improvement in the education system and increase in
literacy.
 Introduction in new technologies, which necessarily
change working practices and relationships.
 Why Cultural Sensitivity is important for
global business and diplomacy?
 Communicate effectively with customers, suppliers,
business associates and partners in other countries and
with foreign employees
 Predicts trends in social behavior likely to affect the firm’s
foreign operations,
 Understand ethical standards and concepts of social
responsibility in various countries,
 Understand local government policies and influence it for
business promotion
 Predict how cultural differences will affect consumer
reactions to advertisements and other promotions.
 How Culture affects management approaches?
There are many ways of examining cultural differences and their impact
on international management. Culture can affect technology transfer,
managerial attitude, managerial ideology and business government
relations. Perhaps most important is how culture affects people’s thinking
and behavior. Following are the ways in which culture directly affects
management.
 Centralized Vs decentralized decision making
 Safety Vs Risk
 Individual Vs. Group Reward
 Informal Vs Formal Procedures
 High Vs low organizational loyalty
 Cooperation Vs competition
 Short-term Vs Long-term horizons
 Stability Vs. Innovation
 Cross Cultural Theories
1) HOFSTEDE : CULTURE AND WORK PLACE
“He focuses on the 1980,1984, and 1991 versions of his IBM studies
involving 1,12,000 employees in 70 countries and 3 regions, namely
East Africa, west Africa and Saudi Arabia. By restricting research
to one company, he tried to eliminate the impact of changing
organizational cultures and analyzed the influence of different
national cultures.
The finding demonstrated that :
 Work related values are not universal;
 Underlying values persist when a multinational company tries to
impose the same norms on all its foreign interests;
 Local values determine how the headquarters’ regulations are
interpreted,
 By implication, a multinational that tries to insist on uniformity is in
danger of creating morale problems and inefficiencies. ”
 The four well known dimensions that Hofstede
examined were:
 Power distance
 Uncertainty avoidance
 Individualism
 Masculinity
Power Distance:
It is the extent to which less powerful members of organizations
accept that power is distributed unequally. It is the distance
between individuals at different levels of hierarchy. Countries in
which people blindly obey the orders of their superiors have high
power distance. Examples would Mexico, South Korea and India.
In such societies, lower level employees tend to follow orders as
a matter of procedures. Even at higher levels, strict obedience is
the practice.
this dimensions shows desirability of equality and inequality in
the society or dependence versus interdependence. Organization
in low power distance countries are usually decentralized and
have flatter structures.
The workforce will often consist of highly qualified people in
high power distance Countries. The salary gap between levels
will be higher. Power will be reflected through status symbols.
 Uncertainty Avoidance
It is the extent to which people feel threatened by ambiguous,
and have created beliefs and institutions that try to avoid
these. This dimension measures how far cultures prepare or
socialize their members into accepting ambiguous situations
and tolerating uncertainty about the future.
High uncertainty oriented nation tend to have a high need
for security and a strong belief in experts and their
knowledge. Example would include Germany, Spain, Japan.
Members in such countries are more anxiety-prone and have
high job stress.
Employees place high premium on job security, career
planning, health insurance and retirement benefits. Clear
rules are and regulations are highly welcomed and respected .
 Countries with low uncertainty culture are more
entrepreneurial, innovative and exhibit less emotional
resistance to change. The manager breaks formal rules
and bypasses authority if necessary.
Organizations in such countries have less restructuring
activities, fewer written rules and more risk taking
managers.
Organizations encourage personnel to use their own
initiative and to assume responsibility for their actions.
Sweden, US and UK are examples of countries with low
uncertainty avoidance.
Individualism
Individualism is the tendency of people to look after themselves their
families only. Hofstede measured this cultural difference on a bipolar
continuum with individualism on one end and collectivism on the
other.
Collectivism is the tendency of the people to belong to groups and to
look after each other in exchange for loyalty.
Individualist cultures stress individual achievements and rights
and expect the individual to focus on his/her needs. Competition is
expected. Americans, high on individualist score, readily go to court
against authority and each other to claim their rights. Individual
decisions are valued over group decisions and individuals have the
right to differ from majority opinion.
Individualism cannot be equated with greed. Distinction between
both can be understood by knowing who makes the decisions,
individual or the group, and how this affects performance.
In collectivist cultures children are taught to think in terms
of ‘we’ . Employer and employee are seen as a members of
one family, relationship prevails over task and duties.
Promotions and advancements are often based on seniority
and loyalty rather than on performance. Employee
performance is better when he/she works in an in-group
than when working alone or in an out-group.
Hofstede found that wealthy countries have
higher individualism scores, and poorer countries have
higher collectivism scores.
 Masculinity
Masculinity is defined by Hofstede as ‘ a situation in which
the dominant values in societies are success, money, and
things. Hofstede measured this in dimension on a continuum
ranging from masculinity to femininity. Contrary to some
stereotypes femininity is ‘a situation in which the dominant
values in societies are caring for others and the quality of
life. ’
Countries with high masculinity index , place great
importance to earning, recognition, advancement and
challenge . Countries with low masculinity index , tend to
place great importance on cooperation, friendly atmosphere
and employment security.
Country Clusters:
Finland
Nordic
Nordic
Near Norway
Eastern Denmark

Sweden Germanic
Arab

Far Eastern
Anglo

Latin Latin
American European
Kluckhonn – Strodthbeck
This theory is based on the ‘patterns of behavior and
thinking’ in different cultures. The researchers distinguish
and compare cultures based on dimensions are:
S.No. Orientation of People Pattern of Behavior or
Thinking
1 What is the nature of people? Good, evil or mixed
2 What is a person’s relationship to Dominant, harmony, or
nature? subjugation
3 What is a person’s relationship to Hierarchical, collectivist,
other individualistic or others?
4 What is the modality of human Doing, being or
activity? containing
5 What is the temporal focus of human Future, present or past
activity?
6 What is the conception of space Private, public or mixed
 What is the nature of people? This question explores the
assumptions of people in different cultures about human nature,
which could be good or evil, or mixed.
The second orientation is about relationship to nature, which
relates to locus of control – whether it is internal or external.
Americans with an orientation for being ‘dominant’ (locus of
control - Internal), believe that man can control nature and
spend huge amount on space research, weather control and
biotech and so on. In such dominant countries, conflict is not
disapproved of and differences in views are encouraged.
Organizational change is easier to implement.
The eastern countries, with an orientation toward harmony
believe that there should be a peace between man and nature.
Countries in the middle east and India, with an orientation for
subjugation, believe that destiny and God, control every thing.
People believe in astrology and assign all success and failure to
God. People generally resist change.
The Third Orientation – a person’s relationship to others – is about
the importance of hierarchy or respect for seniority on the basis of Age,
gender, familial or official position. In countries like Thailand, China
and Indonesia, there is more follower – ship than leadership.
Organization structures are taller and communication is more top-down.
In countries with an orientation towards ‘collectivism’, the needs of the
group are uppermost and people are strive towards consensus. In
‘individualist’ countries like the US, people strive towards individual
excellence and this is valued by society.
The fourth orientation - is modality of human activity – when it is
towards ‘doing’ self identification is achieved through action and
performance. Companies spend a great deal on research and
development. One’s achievement should be visible and measureable to
be recognized by society.
Where the orientation is towards ‘being’ people are more philosophical
and spend time in abstract thinking. Status in life is derived from birth,
age gender, family, and social connections more than though one’s
achievement. In such culture feeling are more valued than logic.
 Where the orientation is towards ‘containing’, focus is on self –
control. Striving is for balance between feelings and doing.
The fifth orientation - is the temporal focus of human activity . -
when it is ‘future’ oriented as in the case of the US, the belief is that a
better future can be planned and controlled. Past performance is less
important ; there is greater focus on career planning and training.
Change is valued. On the other hand, if the orientation is towards the
‘past’ like in India, Pakistan, and the middle east, people base their
decisions on lessons learned from past.
The sixth orientation – concept of space in the minds of people –
how much people value privacy. If people think space is ‘public’ then
a notice that a meeting is in progress is interpreted as a request to stay
out. In countries like China, space is more ’public’ when the doors are
closed. People suspect something fishy. They will generally walk in
without knocking. In the western countries, on the other hand, space
is more ‘private’. People like their own chambers and always knock
before entering other’s room.
Hall’s Theory of Cultural Context: