Chapter 28

International Human Resource Management

Lecture Overview
International HRM
Difference between IHRM and Domestic HRM
Basic steps in IHRM
Key Issues in International Labour Relations

International Human Resource Management

Globalization has significantly influence HRM practices and
policies
All HRM functions need international orientation
MNC operating internationally need to be more focused to
attract, motivate and transfer workforce globally
The process of procuring, allocating, motivating, training &
development, and compensating and utilizing human
resources in international business is called international
human resource management
IHRM covers six main functions of domestic HRM such as
HR planning, recruiting, training and development,
performance management, compensation and labour
relations
The three countries categories of IHRM are country where
headquarter is based, country where subsidiary is located,
and country from where workforce and finances come

International Human Resource Management

The three types of workers in international business are
host country, parent country and third country nationals
IHRM differs from domestic HRM on following points
1. More HR activities
2. Broader perspective
3. More involvement in employees personal lives
4. Greater workforce diversity
5. Change in Emphasis
6. More risk
7. More external influences

International Human Resource Management

1) More HR activities
IHRM has boarder scope in deal with employment related
issues.
For example: International taxation, host country
regulations, home country regulations, international
orientation of relocating and training of employees, and
administrative and compensation issues of expatriates, and
language translation services

International Human Resource Management

Each HR functions has different scope and issues in IHRM
HR Planning
Difficulty in implementation of HR policy and procedure in
host country
Difficulty in aligning business strategy with HR strategy
Providing career development opportunities to international
managers
Hiring
Matching person and organizational fit (cultural match)
Selection of expatriates
Managing expatriates failures
Managing repatriation process

International Human Resource Management

Training and Development

Language training
Cultural training

Training of expatriates and managers

Compensation
Deciding compensation of expatriates
Deciding compensation of parent, host, and third country
nationals
Performance Management
Implementation of performance evaluation system in host
country
Physical distance, time difference, and reporting cost
Raters to evaluate subsidiary performance

International Human Resource Management

Industrial Relations
Who should deal industrial relations issues in subsidiary?
What is attitude and policy of parent company toward unions
in subsidiary?
What should be tactics to deal with unions in subsidiary?
2) Need for Broader Perspective
In dealing with compensation issues, HR manager in
headquarter need to consider different pay systems for
parent, host, and third country nationals, paying in different
currencies, and change in relative value of currency
In deciding fringe benefits, HR managers face difficulty, in
most countries providing health insurance is compulsory,
whereas definition of dependent varies from country to
country, in some countries dependent means multiple
spouses, children, parents, grandparents

International Human Resource Management

3) More involvement in employees personal lives

In IHRM there is more involvement of HR department in

dealing with their personal issues for better selection,
training, relocation and effective management of global
workforce
HRM department need to ascertain that managers selected for
foreign assignment understand housing, health care, and
remuneration package
HRM need to have more information about manager family,
schooling of their children, emotional and physical health of
their spouse and children etc.
International Human Resource Services section provide
services to managers like handling investment, banking,
home rental, house arrangements, home visits, and
repatriation issues
Unlike domestic HRM in International HRM, HR manager
needs to understand more about their personal lives and
provide support in relocation for foreign assignment even

International Human Resource Management

4) Greater Work force Diversity
IHRM requires more emphasis on management of global and
diversified work force
Different work ethics, motivation level, cultural compatibility,
managing team work are main issues that IHRM to handle
5) Change in Emphasis
Emphasis has changed from idea of repatriation and
dependence
on
third
country nationals
towards
development of local managers
As more trained local managers are available, the issue of
training and development of local managers come to
highlight
Designing programs and policies to provide development
opportunities to local managers by placing them in
headquarter

International Human Resource Management

6) Risk Exposure
MNCs operating in different countries need to assess the law
and order situation and advise or provide support to their
expatriates or third countries employees
HR department may also need to have emergency evacuation
program for their employees working in highly risk areas
Poor selection decision may result into huge loss as in case of
expatriate may not perform well and recalled
If MNCs policies and practices are hostile to unions, political
party or in violation of host country regulations, company
can be asked to win up operations or government may seize
physical and financial assets

International Human Resource Management

7) External Influence
MNCs operating in host country face more external influence
as opposed to local company
Federal and local government, political figures, political and
social groups exert great pressure on foreign company
Subsidiary manager need to know local way of doing
business, dealing with different ministries, political parties,
and labour unions

International Human Resource Management

Growing interest in IHRM
There are number of reasons for growing interest in IHRM
Thanks to globalization, more and more entry of multinational
corporations means greater mobilization of human
resources
In international business human resources performance is
more critical for success
The cost of underperformance in international assignment is
very high both in financial and image terms
The international expansion mainly depend on availability and
utilization of competent human resources
Finally, implementation of strategies is more crucial than
developing, and implementation is dependent upon culture
that is developed by HR policies and practices

Managing International HR Activities

HR Planning

Training and
Development
Performance
Management
Remuneration
Repatriation

Organizational Effectiveness

Recruitment and
Selection

Employee Relations

Multicultural
Management
Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333

Managing International HR Activities

HR Planning
HR planning in international business is more complex and
crucial
HRP procedures are difficult to implement in different
countries. Cultural differences in view of planning
Identification of top management
Identification of critical competencies for future managers
Providing developmental opportunities
Tracking and supporting in pursuing international career
path
Aligning business strategy with HRP and vice-versa
(European and Asian strategy)

Managing International HR Activities

Recruitment and Selection
Main issue in international hiring is not to select competent
employee but candidate who could mix with culture of
organization
Ethnocentric Approach
All key management positions are held by parent country
nationals
This is good strategy at early stage of new start
up/operations in host country
Polycentric Approach
Subsidiary is headed by host country nationals and parent
country nationals are at the top positions in headquarter
Some countries have made regulation or exert pressure to
hire host country nationals for top position in subsidiary

Managing International HR Activities

Geocentric Approach
In this staffing approach best people are selected to fill vacant
positions irrespective of their nationality
Staffing approach

Advantages

Disadvantages

Parent Country
Nationals

Familiarity
with
headquarters goals and
objectives
More
organizational
control and coordination
Competent managers are
giving
expatriate
opportunity
Specific
skills
and
experience

Difficulty
in
adjustment:
foreign language, different
culture and political and socio
economic system
Cost of training, remuneration
and family benefits
Host countries nationals feel
demotivated when they see
no further progress
PCN
can
impose
unnecessarily HQ culture and
style
Family adjustment issues

Managing International HR Activities

Staffing approach

Advantages

Disadvantages

Host Country
Nationals

Familiarity
with
countrys Communication problems
culture, political system and
with
home
country
business practices
management
Low cost of hiring and Little change of host
remuneration
country nationals to get
Promotional opportunities for
international assignments
locals hence motivated and
and experience
committed
Difficulty in inculcating HQ
No language barrier
management philosophy,
Continuity of management
culture, and best practices

Third Country
Nationals

Low
salary
package
as
compared to PCN
They are truly international
managers
May be more aware of host
country culture, political and
economic system, language
hence easily and quickly
adjust

Host country may not like

to hire TCN
TCNs may not return to
their country
Host country may be
sensitive or have hostile
attitude toward TCN
Resistance from subsidiary
employees

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 667 333

Chapter 28
International Human Resource Management

Lecture Overview
International HRM
Difference between IHRM and Domestic HRM
Basic steps/activities in IHRM
Key Issues in International Labour Relations

Managing International HR Activities

HR Planning

Training and
Development
Performance
Management
Remuneration
Repatriation

Organizational Effectiveness

Recruitment and
Selection

Employee Relations

Multicultural
Management
Adopted from: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 664. 333

Managing International HR Activities

Factors Influencing PCN and HCN Choice
Dimensions

Factors

Parent Country
Characteristics

Cultural distance between HQ and subsidiary, size

of operation, research intensity

Industry Characteristics

Financial institution, need for control, need to

customize

Subsidiary Characteristics Age, acquired or strategic role of subsidiary,

performance, ownership
Host Country Variables

Educational levels, political risk, cost of hiring

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 668 333

Managing International HR Activities

Expatriates
Expatriates are those employees who work abroad (away from
their home country) for a specific time period with a
planned return to third country or home country
Expatriates Assignment life cycle

Need for
expatriates

Crises and
adjustment

Departure

Reassignment
abroad

Post arrival
training
Selection
process

Pre assignment
training

Repatriation
and
adjustment

or

Crises and
failure
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 669 333

Managing International HR Activities

Reasons of Expatriate Failure
US Firms

Japanese Firms

Spouse adjustment problem

Inability to cope with

international responsibilities

Inability of managers to adjust

Difficulties with environment

Other family reasons

Personal and emotional

problems

Personal and emotional

maturity of managers

Lack of technical competence

Inability to cope with

international responsibilities

Spouse adjustment problem

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 669 333

Managing International HR Activities

Expatriate Adjustment Process

High

Cultural Shock Cycle

Mood

Low
Months in new culture
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 670 333

Managing International HR Activities

Expatriate Selection Decision

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 670 333

Managing International HR Activities

Training and Development
The common objectives of training and development in MNCs
are
Bridging cultural gap between subsidiary and HQ
Orientation challenges are different in HQ and subsidiary
Building united corporate culture
Training and development activity IHRM most of the time
focus on training of candidate likely to be posted abroad
Expatriates are giving training to reduce likelihood of failure
in foreign assignment. The main components of training of
expatriate are cross cultural, language and practical
training, and management development programs

Managing International HR Activities

1) Cross Cultural Training:
Expatriate receives pre-departure training on host country
culture to make it easy for him/her to adjust to new culture
Expatriate often receives training on repatriation to avoid
cross cultural shock
Merits

Demerits

More chances of success in

foreign assignment

May not remove cultural biases

Provides comprehensive global Recipient may not take it

perspective
serious
Sense of confidence

May not make real difference in

business

Reduces cultural shock

Can not prepare manager to

face all real life problem

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 672 333

Managing International HR Activities

Performance Management
In IHRM performance management tend to focus on evaluation
of performance and continuous improvement of individual,
subsidiary and corporate performance against pre set
targets and objectives
Steps in Performance Management of Expatriate

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 674 333

Managing International HR Activities

Expatriates Compensation
The objectives of expatriate compensation
1. Attract employees for international assignment
2. Facilitate the movement
3. Be cost effective
4. Provide consistent relationship between HQ employees and
foreign subsidiary
Problems with expatriate compensation
1. Gap between pay of parent, host and third country nationals
2. The pay variation considering the expatriate's family
3. Issues relating to entry of expatriate back to parent country

Managing International HR Activities

Expatriates Compensation

MNC Internal
environment
Goal orientation
Capacity to pay
Internal workforce
composition
Subsidiary role

MNC external
environment

Parent nationality
Local culture
Host and home country
government role
Industry type
Competitor's strategy

Staffing Option

Compensation
strategy
Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 6773

Managing International HR Activities

Expatriates Compensation

Base Salary
Different meaning from domestic employment
Primary component of package of allowances (foreign
assignment premium, house allowance, and cost of living
allowance)
Payment in home country and host country currency
Benefits Issues
Whether expatriate subscribe to home country benefits (if
there is tax exemption)
Whether home or host country is responsible for social
security benefits
Whether the benefits should be according to host or home
country requirements
Whether home country benefits be available to local citizens

Managing International HR Activities

Expatriates Compensation
Allowances
Cost of living allowance, provide same standard of living as
expatriate was enjoying in home country
Covers expenses like relocation, housing, hardship, and
education
Spouse assistance (protect or compensate loss in case of
spouse lost income due to relocation)
Offer support to find spouse job or placement in subsidiary
Incentives
Incentive is once time lump-sum payment apart from regular
salary
Tax equalization: MNC based on home country tax
obligation withhold or deduct amount from expatriate salary
and pay all taxes in host country
Tax protection: Employee pays up to the taxes he would pay
on remuneration in his home country and entitled to retain
extra in case tax deduction is less in foreign assignment

Managing International HR Activities

Expatriates Compensation
Tax Consideration

Tax equalization: MNC based on home country tax

obligation withhold or deduct amount from expatriate salary
and pay all taxes in host country
Tax protection: Employee pays taxes he would pay on
remuneration in his home country and entitled to retain
extra in case tax deduction is less in foreign assignment

Managing International HR Activities

Expatriates Compensation
Tailoring the package

Balance sheet approach

Equate purchasing power of expatriate in host country with
home country
Going rate approach
Expatriate compensation is linked with host country on
going rate
Lump-sum method
Giving lump-sum amount and expatriate has option to
spend in a way he likes
Regional approach
In which MNC decide compensation system for particular
region (Europe, South Asia, Middle east)

Managing International HR Activities

Repatriation
Bringing expatriate back to home country after completion of
assignment or due to other reasons (failure to perform,
adjustment problems, family problems)
Re-entry shock or reverse culture shock
Benefits of returnees
Exposure to global culture and local culture
Part of global network
Understand operations of HQs and subsidiary (overseas
operations)
Transfer technology, business knowledge back to home
country
Provide coordination and communication support

Managing International HR Activities

Benefits from returnees
Exposure to global culture and local culture
Part of global network
Understand operations of HQs and subsidiary (overseas
operations)
Transfer technology, business knowledge back to home
country
Provide coordination and communication support
Personal and professional growth (global and broader
vision)

Managing International HR Activities

Repatriation Process
Preparation

Physical
relocation
Repatriation
Process
Transition

Re-adjustment

Source: Aswathappa. Human Resource Management, Text and Cases, 2008, p. 681

Managing International HR Activities

Repatriation
Challenges of Re-entry
Individual Perspective
Personal Perspective: Face reverse cultural shock
schooling, social network, loss of income, lower social
status
Professional disappointment: No use of his expertise and
skills gained during foreign assignment, less authority,
autonomy, and importance
Often limited promotion opportunities and career choices
means removed from mainstream corporate advancement
Organizational Perspective
Retaining the expatriate after repatriation

Managing International HR Activities

Industrial Relations
Who should deal industrial relations issues in subsidiary?
What is attitude and policy of parent company toward unions
in subsidiary?
What should be tactics to deal with unions in subsidiary?

Managing International HR Activities

Multiculturalism
Culture is customs, beliefs, values and norms that guide
behavior and pass from one generation to other
Multiculturalism when people from different cultures interact
regularly
IHR managers should have cross cultural competence
Should have strong personal identity, knowledge of different
cultures, communicate effectively in language of given
culture group
Hofstede Cultural dimensions: Power distance, uncertainty
avoidance, Individualism, and masculinity

Summary
International HRM
Difference between IHRM and Domestic HRM
Basic steps/activities in IHRM
Key Issues in International Labour Relations