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International Human Resource Management

-S. S. Khanka
The only man who behaves sensibly is my tailor; he takes my measurements anew every time he sees me, while all the rest go on with their old measurements and expect me to fit them. - George Bernard Shaw

Structure
Types of International Business
Dimensions of Functions of IHRM Perspective of IHRM Cultural Differences Across the Territory

HR Approaches
HR Practices Compensation Performance Appraisal

Types of International Business 1. Exporting :

Selling abroad either directly to the target customers or indirectly by retaining foreign sales agents or/and distributors. Either case, minimum impact on human resource practices because only a few, if at all, of employees are expected to be posted abroad.

2. Licensing :
A firm (licensor) grants a foreign firm the right to use intangible property for a specific period of time in return of royalty. Examples :- patents, copyrights, manufacturing processes, etc, or trade names like Indian Basmati.

Cont.

Franchising
It is closely related to Licensing. Parent company (calledFranchisor) grants another company (Franchisee) theright to do business in a prescribed manner. Examples : Pepsy Food Ltd., Coca-Cola, McDonald and Nirula. Delhi Public School.

Difference between Licensing and Franchising

More stricter rules in case of latter, i.e. Franchising Licensing more confined to manufacturing, Franching more confined to services such as restaurants, hotels, and rental services.

cont.
Foreign Direct Investments (FDI)
Business operations in one country that are controlled by entities in a foreign country. In India, FDI means acquiring control by more than 74% of the operations. Till 2001-2002, this limit was 51%. Forms of FDI : Joint Ventures and wholly-owned subsidiary. IHRM is defined as the interplay between the three important dimensions of human resource management : 1. Types of employees 2. Human Resource activities, and 3. Country of operation

Dimensions of Functions of IHRM

Morgan (1986) model consists of three dimensions of the functions of IHRM : Three broad human resource activities procurement, allocation and utilization. II. Three major country categories involved in IHRM activities A. The Host country where the subsidiary may be located. B. The Home (Parent) country where the firm is headquartered. C. The Other countries which may be the source of labour, raw material, finance, etc. III. Three types of employees of an international business firm A. Host Country Nationals (HCNs) B. Parent Country Nationals (PCNs) C. Third Country Nationals (TCNs) I.

Perspective of IHRM
Perspective influences practices. The major factors that form perspective for IHRM are : Cultural Factors, EconomicFactors, Labour Cost Factors, Labour Relations Factors.

Cultural Factors :
Shared views, beliefs norms, etc. by the organisational members that influence their behaviour. The same distinguishes one organisation from the other. Tezpur University and Assam University. Similarly, wide ranging cultural differences exist across the nations/countries. Eastern culture widely varies from the Western culture. Japan in Asia focuses more on work group incentives, whereas the West on individual workers incentives.

Cultural Differences Across the Territory

Geert Hofstedes research of IBM Managers from 66 countries produced some interesting evidences of cultural differences. He found that societies differ on four primary dimensions which he nomenclatures : 1. Power Distance (PDI) 2. Uncertainty Avoidance (UAI) 3. Individualism (INV) 4. Masculinity (MASC) Power Distance PDI Member accept that power in the institution should be distributed equally. Accordingly, the distance between the Government and the governed is narrower in the democratic countries like India than in dictorial one like Phillippines. It means, workers in India has far more chances to influence the decisions of the Government then would the workers in Phillippines. According to Hofstede, the same happens to the organisations as well.

Cont.
Uncertainty Avoidance : Creating set of rules and regulations that eliminate ambiguity or uncertainty and support those rules that are promising for certaintity and confirmity. Differences abound among countries from this point of view also. Indians, Germans and French feel a much greater need for rules and regulations than do the Swedish and the British. Uncertaintity avoidance is more frowned in high PDI countries like Phillippines. Individualism: Degree of preference to look after oneself and family. Just reverse is collectivism. USA and Britain score high on individualism and Indonesia low. Japan scores high on collectivism. Masculinity: The extent society values assertiveness (masculinity) and caring (Femininity). Masculinity pertains to those societies in which social gender roles are clearly distinct, i.e. men are supposed to be more tough and focused on material success. Femininity where women are supposed to be more modest, tender and caring. Japan and Australia high on masculinity and Sweden and Denmark high on femininity.

Cont.
Economic Factors
Economic conditions too vary across nations and, in turn, HR practices. For example, in a country with the free enterprise system, the need for efficiency tends to favour HR practices and policies that favour productivity. In case of a country with the socialist system, HR practices tend to shift toward different direction like preventing unemployment. It may do so even at the expense of sacrificing efficiency.

Labour Cost Factors

High labour cost influences more focus on labour efficiency. It will lead to Pay-By-Performance. Labour cost high in United Kingdom and low in India.

Work hours also vary across nations. Such variation also affects HR practices in terms of leaves/and vacations.

Cont.

Labour Relations Factors

Relationship between employers, employees, and government. Industrial relations have their bearing on HR practices. For example, in Germany, co-determination is the rule, i.e. employees enjoy legal rights to have their voices in the matters of their company. In India like many other countries, HR policies on most of matters like compensation and retirement benefits are determined by the Government.. Minimum Wages Act, 1948, The Payment of Gratuity Act, 1972, and The Payment of Bonus act, 1965 are such examples.

HR Approaches
The Polycentric Approach The foreign subsidiaries are managed by the host country nationals and home-office headquarters by the PCNs.

Advantages :
Reduces the local cultural misunderstanding. Adjustment and language learning problems are eliminated. American Express and Nestle follow this approach. The Geocentric Approach This approach has accent on ability rather than on nationality. Seeks the best people for key posts throughout the organization irrespective of nationality. Drawbacks Faces conflict with the local Government who desire foreign subsidiaries to appoint their citizens.

HR Practices
Recruitment and Selection
20 to 30 percent overseas assignments fail due to the recruitment reason. Selectors emphasize on technical qualification and little on the individual ability to adapt to a foreign environment. Along with technical competence, relational abilities increase probabilities of successful performance. The expatriate employees will have to cope with new work force, with colleagues with drastically different cultural inclinations. Face the problems of adjustments with new place and people, making new friends, shopping in strange surroundings, learning language and attending new schools.

Cont.
Training
1. Training in MNCs should be imparted in the social, cultural, business and technical aspects to make them fit for business requirement of today and tomorrow. Four-Level Training : Level I : Focuses on impact of cultural differences, and on raising trainees awareness of such differences. Level II : Attitude formation Level III : Factual knowledge about the target country. Level IV : Skill building in the areas like language, adjustment and adaptation ability. IBM also imparts training by rotating employees from job to job from time to time. The success of the Japanese MNCs in attributed to their strong training practices.

2. 3. 4.
5. 6.

Four-Level Training

Level I
oImpact of cultural differences oEmployee awareness

Level II
How attitudes are formed and influence employee behabiour

Level III
Imparts factual knowledge about the host country.

Level IV
Skill building in areas of language, cultural adjustments, etc.

Cont.
1. Level I : Focuses on impact of cultural differences, and on raising trainees awareness of such differences. Level II : Attitude formation Level III : Factual knowledge about the target country. Level IV : Skill building in the areas like language, adjustment and adaptation ability. IBM also imparts training by rotating employees from job to job from time to time. The success of the Japanese MNCs is attributed to their strong training practices.

2. 3. 4.

Compensation
The issue is tricky one for two reasons: 1. Paying the employees of one rank the same compensation satisfies the norm of equitable remuneration. 2. But, it raises certain serious problems also. The reason being the cost of living can be significantly varying among the countries. For example. Living in America will be enormously more expensive than in India. If these differences in cost of living are not taken into consideration, getting employees to serve in costlier countries will be very difficult.
In such case, the most common approach for formulating multinational employees compensation is to equalize purchasing power across the countries through a technique known as Balance Sheet Approach. For this, some allowances in the form of mobility allowance, childrens education allowance, etc. are given over the multinational pay base.

Performance Appraisal

Like compensation, several things complicate the task of appraising a foreign employees performance. Two very crucial issues are: 1. Who will appraise? 2. What will be the criteria of appraising? Yes, local managers may appraise the expatriate employee.

THANQ