IHRM: International Human Resource Management

Definitions of IHRM:

International human resource management is all about the world wide management of human resources – Process of sourcing, allocating, and effectively utilising their skill, knowledge, ideas, plan and perspective in responding to TQM. The process of procuring, allocating and effectively utilizing human resources in an international business is called International Human Resource Management or IHRM. International Human Resource Management is the process of sourcing, allocating and effectively utilizing human resources in a multinational organization.

Dimensions of IHRM:

According to P.V. Morgan: IHRM is the interplay among 3 dimensions: ƒ

·         HR Activities

·         Types of Countries

·         Types of Employees

 Broad Activities Of IHRM – procurement, allocation and utilization of human resources cover all the six activities of domestics HRM i.e,

·         HR planning

·         Employees Hiring

·         Training and Development

·         Remuneration

·         Performance Management

·         Industrial Relations.

2)  Types Of Countries- The three national or country categories involved in IHRM activities are: -

Ø  The Host Country where subsidiary may be located.

Ø   The Home Country where the company has its head quarters.

Ø   Other Country that may be sources of labor or finance.

   3) Types of Employees- The three types of employees of an international business are –

Parent Country Nationals (Pcns): A parent-country national is a person working in a country other than their country of origin. Such a person is also referred to as an expatriate. Long periods of assignment (perhaps 4 –5 years or more) may run the risk of “de facto” employee status in the host country, so that labor laws or the host country apply.

Host Country Nationals (Hcns): They are those employees of an organization who are the citizens of the country in which the foreign subsidiary is located.

Third Country Nationals (Tcns): These are the citizens of a country other than the country where the organization is headquartered and the country that is hosting the subsidiary.

For example, IBM which employs Australian citizens in its Australian operations, after sends US citizens to Asia Pacific countries on assignment, and may send some of its Singaporean employees to its Japanese operations.

Global Human Resources Functions

Much like domestic companies, the roles for the HR department working for a global company consist of five main functions. Below we will look at each one and explain how they differ when they're being conducted on a global scale.

1. Recruiting and hiring:

The goal of recruiting is finding a qualified candidate that can fulfill the duties of the position. It involves understanding the job description and interviewing, after which comes hiring the candidate that is the best match. When completing this function on a global level, there are some important considerations. First, the HR department needs to understand the tasks for the position in that part of the world, and the skills needed to be successful. Education levels and differences are also a consideration, since they may not be the same from country to country.

2. Training:

Once the employee has been selected, they need to be trained. Most employees need some training in order to learn the ways a company does things. When the company is global, it is crucial that processes and policies are similar from one global area to the next in order to clearly communicate and to be able to use resources and materials in a variety of different places. Using the same processes and polices avoids miscommunication among offices and staff, and it cuts costs when the resources can be passed around to all of the different locations.

3. Developing and administering:

Most companies, global or not, offer opportunities for additional training in order to develop the skill sets of their employees. When this happens on a global level, employees may have an opportunity to visit another country to receive valuable training. This increases the value of the employee because they can now become successful in a variety of locations. As for administration, companies also need to make sure that they oversee their employees in a professional manner. This may mean, training, compensation, or adhering to laws and regulations. On a global level, this is especially important because working hours may vary from location to location. Following the local laws is a priority for global HR departments.

4. Salary and benefits:

Whether the company is local or global, they have to compensate their employees. And most offer some sort of benefits package, which include things like insurance, vacation, and sick days. However, companies need to pay close attention to how laws differ in all parts of the world. For example, the minimum wage might be different, and some countries might offer paternity leave for new fathers as a benefit. While the common goal is to pay employees for their work, knowing the standards, laws, and rules for each global area is an important goal for a global HR department.

5. Legal and personnel relations:

Like we mentioned earlier, following the laws of each country is a crucial aspect of a global human resource department. This means knowing and following labor laws, tax laws, holidays, and any religious needs. By following the policies of each country, a company is able to keep out of legal trouble where these areas are concerned.

International HRM approaches

There are mainly four IHRM approaches. The suitability of the type of staffing policy adopted by MNEs depends on the strategy used by the company.

Ethnocentric- The home country practice prevails with this approach. Headquarters from the home country makes key decisions, employees from the home country hold important jobs, and the subsidiaries follow the home country resource management practice.

Polycentric- Each subsidiary manages on a local basis. A local employee heads a subsidiary because headquarters’ managers are not considered to have adequate local knowledge. Subsidiaries usually develop human resource management practices locally.

Geocentric or global-  The company that applies the global integrated business strategy manages and staffs employees on a global basis. For example, Electrolux (the vacuum cleaner company) has for many years attempted to recruit and develop a group of international managers from diverse countries. These people constitute a mobile base of managers who are used in a variety of facilities as the need arises.

Regiocentric approach-  Here the MNE divides its operations into geographic regions and moves staff within a particular region. Examples include Europe, America, Asia rather than between regions.

Difference between Global or IHRM and Domestic HRM

The reasons that IHRM is more complex than domestic HRM are described below.

1. International HRM addresses a broader range of activities than domestic HRM. These include international taxation, coordinating foreign currencies and exchange rates, international relocation, international orientation for the employee posted abroad, etc.

2. Human resource managers working in an international environment face the problem of addressing HR issues of employees belonging to more than one nationality. Hence, these HR managers need to set up different HRM systems for different locations. Human resource managers in a domestic environment administer HR programmes to employees belonging to a single nationality.

3. International HRM requires greater involvement in the personal life of employees. The HR manager of an MNC must ensure that an executive posted to a foreign country understands all aspects of the compensation package provided in the foreign assignment, such as cost of living, taxes, etc. The HR manager needs to assess the readiness of the employee’s family to relocate, support the family in adjusting to a foreign culture through cross-cultural training, and to help in admitting the children in schools. The HR department may also need to take responsibility for children left behind in boarding schools in the home country by the employees on foreign postings. In the domestic environment, the involvement of the HR manager or department with an employee’s family is limited to providing family insurance programmes or providing transport facilities in case of a domestic transfer. 

4. There is heightened exposure to risks in international assignments. These risks include the health and safety of the employee and family. A major aspect of risk relevant to IHRM today is possible terrorism. Several MNCs must now consider this factor when deciding on international assignments for their employees. Moreover, human and financial consequences of mistakes in IHRM are much more severe than in domestic business. For example, if an executive posted abroad returns prematurely, it results in high direct costs as well as indirect costs.

5. International HRM has to deal with more external factors than domestic HRM. For example, government regulations about staffing practices in foreign locations, local codes of conduct, influence of local religious groups, etc. If an American organization is sanctioned license by the Indian government to set up its subsidiary in India, the American company is under legal obligations to provide employment to local residents.

6. International HRM Addresses a broad range of HRM activities. Whereas domestic HRM deals with issues related to employees belonging to single nationality.