Introduction to IHRMModule 1

Definition, reasons for going global, Approaches to IHRM, Difference between IHRM and Domestic HRM, Reasons for emergence of IHRM, Models of IHRM-Matching model, Harvard Model, Contextual Model, 5P Model European Model, Models of SHRM in Multinational Companies, Internationalization of HRM: Socio-cultural context, Organizational dynamics and IHRM: Role of culture in International HRM, Culture and employee management issues, Organizational Processes in IHRM, Linking HR to International expansion strategies, The Challenges of International Human Resource Management

Syllabus

Utilizing and managing human resources effectively in International business

6 hr activities of HRM:o Human resource planningo Staffingo Performance managemento Training & developmento Compensationo Industrial relations

Introduction: Definition of IHRM

Morgan, a management philosopher presents three dimensions:

1.Broad activities [6 hr activities] of HRM- procurement, allocating and utilizing

2. Country categories involved in IHRM : A host country where subsidiary is located A home country where firm’s head quarter

is located Other countries that may be the source of

labour, finance etc.

Contd..

3. Employee categories of an international firm:

Host country nationals [HCNs] Parent country nationals [PCNs] Third Country nationals [TCNs]

Morgan defines IHRM as interplay among these 3 dimensions; human resource activities, types of employees and countries of operation

Contd..

Model of IHRM

Expatriates- employee who is working and temporarily residing in a foreign country. Also known as ‘international assignees’.

These are the employees who are transferred out of their home base into some other area of the international operations.

These are the staff who are transferred out of the company

PCNs are always expatriates. Inpatriate- staff who are transferred into a particular

company

Transpatriates- employees who are moved between subsidiaries.

Expatriates/Inpatriates/Transpatriates-meaning

International assignments create expatriates

1. International Opportunities2. Reactive reasons Globalization of competitors- competition is one

of the strong reasons to go international. If it does not go, someone else will capture the market.

Trade barriers- restrictive trade barriers like tariff, quotas, political reasons and other trade practices can make export to foreign country expensive, hence other measures to go global are adopted

Customer demand –acts as a primary reason for some companies.

Reasons for going global

3. Proactive reasons Economies of scale- Companies can achieve

economies of scale by access to various regional resources by setting up huge capacities and distribution centers at low cost.

Growth opportunities- where home market is matured , new market provides place to invest surplus profit and underutilize resources.

Resource access and cost savings- access to low cost resources and better control over resources, access to inputs like raw materials and lower transportation cost.

Incentives [by government]- tax exemptions, tax holidays, subsidy loans at cheaper rates, access to properties etc.

Reasons for going global contd..

There are 4 terms to describe MNCs approaches to managing and staffing their subsidiaries:

Ethnocentric Polycentric Geocentric Regiocentric

These terms are derived from the work of Perlmutter [1969]

Approaches to IHRM

Ethnocentric Approach Subsidiaries are managed by expatriates from

home country. Strategic decisions, key positions at domestic

and foreign operations are held by management personal of headquarters.

Polycentric Approach MNC treats each subsidiary as a distinct

national entity with some decision making autonomy.

Subsidiary are managed by local nationals PCNs are rarely transferred to foreign subsidiary

operations.

Geocentric Approach MNC takes a worldwide approach to its

operations, recognizing that each part makes a unique contribution with its unique competence

PCN, HCN, TCN can be found in key positions any where including at top level at Head Quarter.

Regiocentric Approach MNC utilizes a geocentric strategy but in a limited

way Personnel may move outside their country but

only within the particular geographic region Regional managers may not be promoted to HQ,

but enjoy autonomy in decision making to some extent.

More HR activities The need for a broader perspective More involvement in employees’ personal lives

Changes in emphasis as the workforce mix of expatriates and locals varies

Risk exposure Broader external influences

Differences between IHRM and Domestic HRM

[Moderate: either diminish or accentuate] Usually we argue that complexity in

operating in different countries and employing different national categories of employees is a key variable which differentiates between domestic and International HRM.

But there are other variables which either reduce or increase gap/difference between Domestic and IHRM.

Variables that moderate differences between IHRM and Domestic HRM

Variables that moderate differences between IHRM and Domestic HRM contd..

Globalization leads more MNCs and greater mobilization of human resources

Recognition of HR management as a success factor in international business

Failure in international assignments is costly and it is dependent on employees

Implementation of international strategies is often challenging because its difficult to get competent people

Changing organization structure. Now you have networked structure or virtual, boundary less, horizontal communication channels. HR plays significant role in such organizations

Cultures are built by proactive HR policies and actions.

Reasons for emergence of IHRM / Growing interest in IHRM

1. Matching Model: Highlights resource aspect of HRM Emphasizes efficient utilization of human

resources to meet organizational objectives

Focuses a right fit between organizational strategy, organizational structure and HRM systems

MODELS of IHRM

2. Harvard Model: Stresses human aspect of HRM More concerned with the employer-

employee relationship Highlights interests of different

stakeholders in organization [ shareholders, management, employees, government, community etc] and how their interests are related to objectives of management.

3. Contextual Model: Organizations may follow different pathways

in order to achieve same results This is because there is a linkage between

external environment context [socio-economic, technological, political legal, competitive] and internal organizational context [culture, structure, leadership etc]

These linkages directly form the strategies of HRM

4. 5 P Model: 5 HR elements [philosophies, policies,

programs, practices and processes] melding with strategic needs

This model shows how each are interrelated and explains their importance in achieving organizations’ needs.

5. European Model: Based on argument that European

organizations are constrained at both international [European Union] and national level by national culture and legislation.

They also consider patterns of ownership at organizational level and trade unions involvement and consultative arrangements at HRM level.

These constraints need to be accommodated while forming HRM model in the company.

SHRM means process of developing HRM practices, programmes and policies that help to achieve organizational goals

HR strategic movement process involves actions on seven areas:

Understand the environment Formulate strategies Indentify competitive advantages Define organization’s capabilities Indentify HR practices that matches with

organizational capabilities Link HR strategy with business strategy Implement strategies

Models of SHRM in multinational companies

SHRM ModelFirm

strategy

HR Behavio

ur

HR Capital

Pool [Skills, Abilitie

s]

Institutional / political Forces

Firm Level

outcomes

HRM Practices

Resource based view of firm

Cybernetic Agency/Transaction costs

Resource Dependence

Behavioural Approach

Various internal and external factors of the company influences human resource management. One of the major external factors is the socio-cultural context/ environment within which company operates.

Culture: customs, beliefs, norms and values that guide the behaviour of the people in a society and that are passed from one generation to the next.

Levels of culture: dominant culture, sub culture, organizational culture and occupational culture

Multiculturalism: people from different culture interact regularly

Internationalization of HRM- Socio cultural context

Socio- cultural context: how HRM practices are influenced by socio - cultural factors

National Culture

Organizational Strategies &

policies

National HRM practices & practices

Contingent Variables

Institutions

Dynamic Business

Environment

Industrial Sector

4 approaches & role of culture1. Ethnocentricism: home country’s culture is

imposed on subsidiaries2. Polycentricism: Subsidiary adopts local

culture 3. Regiocentricism: subsidiary adopts that

region’s culture

Role of Culture in IHRM

4. Geocentricism: where talents can be hired from any place MNC becomes cosmopolitan Global managers are able to adjust any

business environment Adjust to cultural differences But in this case additional training cost

should be invested on that Inpatriate and compensation may be higher than its own employees

Contd..

Assertiveness Future orientation Performance orientation Human orientation Gender orientation In group collectivism Societal collectivism Power distance Uncertainty avoidance

9 cultural dimensions that differentiates one society from another

Attitude to power and authority Tolerance for ambiguity & attitude to risk

Interpersonal trust Individualism and collectivism Preference for certain leadership behaviours

Culture and employee management issues

Organizational processes in IHRM

CEO

International Division structure

VP International Operations

Production Marketing Finance Personnel

EgyptFrance Japan

Home office Departments

Overseas subsidiaries

Functional structure]

CEO

Production Marketing Finance Personnel

Plant B Brazil

Plant A Germany

Geographic Structure

CEO

Europe Latin America Division

N. America and Pacific

Division

UK Venezuela

Italy

Manufacturing Marketing

Finance

USJapan

Canada

Product Structure CEO

Product Division A

Product Division C

Product Division B

Europe Far EastAustralia

UK SpainGermany

Manufacturing

MarketingFinance

Matrix structureCEO

Global Marketing

Global Finance

Global Operatio

ns

Global HR

Global Product

Manager A

Global Product

Manager C

Global Product

Manager B

International expansion strategies New set up Alliances or joint venture Global integration- mega national firm Multi domestic firm strategy M&A

Linking HR to International expansion strategies

Composition of new board Who will occupy which job? Culture assessment Creating a new culture Effective communication Retaining talent Aligning per evaluation and reward systems Managing transition [transformation

process]

HR should focus on

The extent of HR involvement in the acquisition process depends on the strategy behind the acquisition

Acquisition strategies

Absorption: acquired company confirms to acquire- cultural assimilation

Preservation: Acquired company retains its independence-cultural autonomy

Transformation: both companies find new ways of operating- cultural transformation

Best of both: additive from both the sides-Cultural integration

Reverse merger: unusual case of acquired company dictating terms-cultural assimilation

High

Low

High

Deg

ree o

f ch

an

ge in

acq

uir

ed

com

pan

y

Degree of change in acquiring company

Strategies for post merger outcome

High failure rates of expatriation and repatriation Deployment- getting the right mix of skills in the

organization regardless of geographical location Knowledge and innovation dissemination- managing

critical knowledge and speed of information flow Talent identification and development- identify capable

people who are able to function effectively Barriers to women in IHRM- gender differentiation International ethics

language [spoken, written, body] Different labour laws and different political climate Different values and attitudes e.g., time, achievement,

risk taking Roles of religion- sacred objects, prayer, taboos, holidays Education level attained

Main challenges in IHRM