International HRM
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Table of Contents
Factors or variables acting as moderators of domestic and international HRM… 3
The attitude of senior management/HR to international operations. 12
Introduction
IHRM or International Human Resource Management can be understood as procedures and activities that ensure the management of the human resources, particularly, at an international level. The activities are designed in a manner that it will help the organisation gain a competitive advantage over other organisations. Similarly, domestic HRM refers to management of the human resources at the local or national level. Hence, the notable differences between domestic HRM and IHRM are in the set of activities and location. Both domestic and international activities within the HRM function are influenced by five variables. The variables play the role of moderators and either diminishes or heighten the existing differences between IHRM and domestic HRM. The five common variables are the cultural environment, attitude of senior management, extent to which the multinational is reliant on the activities of its home country within the domestic market, type of industry in which the MNC operates and the kind of complexity that exists in operating within different nations and hiring various types of national employees. In this paper, three moderators have been chosen, and emphasis shall be given on them in order to understand the type of influence. The chosen variables are the cultural environment, industry type and senior management attitude towards employees. Relevant organisational examples shall be cited as well.
Factors or variables acting as moderators of domestic and international HRM
Differences between domestic and international HRM practices exist, and in the case of IHRM, the specificity of factors are more because the organisation operates across different countries. It creates the necessity to employ candidates from both home states as well as from foreign countries. Due to business expansion and internationalisation, the operations need to be internalised as well. Moreover, institutional differences between countries exist. The differences lie at the political level, economic level and legal level. This, in turn, affects the business systems as well. Companies aiming to operate at a global level usually consider the whole world as their “resource”. Hence, various circumstances arise that need to be managed. The company needs to consider problems that might arise due to differences within the tax system, differences in social security policies for employees, employment forms, and labour regulation related policies and so on. Therefore, during the hiring or while paying people, complexities are most likely to arrive. This distinguishes the activities of domestic HRM from international HRM. The key factors have been shown in the diagram below-
Figure 1: Factors acting as moderators of domestic and international HRM
(Source: researchgate.net, 2020)
Cultural environment
Culture shapes the attitudes, values and behaviour of a group of people and cultural traditions are passed from one generation to another. Through the process of socialisation, which is a dynamic process, culture is acquired. In an organisation, the process of organisational learning occurs that the concept of organisational culture is necessary to understand the basis of organisational learning (Cook and Yanow, 2011).
Effect of changing cultural environment
Cultural environment and the continuous changes within the environment form an integral part of all organisations. The necessity of scanning both the internal and external organisation arises because the organisation is supposed to adapt to societal changes. Moreover, the system theory of management also states that an organisation cannot be considered as a closed system because irrespective of the size, it is impacted by its environment (Bajpai Singh and Dutch, 2014). Therefore, it can be stated that in domestic HRM, the changing cultural environment can act as a moderator and has an impact on the work systems as well. It is necessary to set goals along with other methods so that the organisational behaviour can be controlled. The HR professionals are supposed to consider the cultural environment so that the ultimate goals can be achieved. For example, when an individual joins an organisation, he or she brings the ability, personality as well as intelligence that can influence the organisation. Similarly, the individual also brings certain socio-cultural features that act as a moderator. It can influence the overall work within the organisation. Moreover, the socio-cultural expectations of employees tend to vary based on the region they belong to and this in turn, influences the HRM to devise its practices. However, domestic HRM is less complicated because the cultural differences between employees are low. It also implies that the HR manager deals with limited cultural issues because employees belong to a single nationality. The HRM activities are designed in a manner that it addresses only limited employee-related issues.
Figure 2: Cultural factors influencing HRM practices
(Source: sciencedirect.com, 2020)
IHRM competencies required at a global level
Within the global economy, again, the cultural environment plays a unique role. It determines the organisation’s ability to achieve success. The HR department must have knowledge regarding the economy of the foreign countries as well as exact differences between the cultural practices. It should be noted that while operating within one’s own country, cultural differences might exist between territorial states and ethnic groups. However, while operating at a global level, IHRM should be interested in not only identifying the cultural differences but also developing high cultural intelligence as well as cultural competence of employees so that they can perform at the international environment (Raletić-Jotanović et al., 2015). Due to different communication rules and language diversity, work-related attitudes, eating habits and attitude towards time, employees belonging to different nationalities behave differently. Hence, the organisation should be focussing on aligning the cultural environment with the beliefs and attitudes of the people. The activities should be reflected in training, hiring, promotion, remuneration as well as worker’s dismissal. While relocating an employee to a different work environment, special attention should be given by the management. The condition of the entire business will improve as soon as the cultural environment is modified.
Figure 3: Categorisation of IHRM activities
(Source: researchgate.net, 2020)
Organisation-based example
Australia-based global biotechnology company, CSL Limited, works with more than 25000 employees around the globe (Csl.com, 2020). Hence, the company manages its IHRM activities by creating an appropriate cultural environment. Employees are trained to work towards a shared purpose that is, saving lives through innovative medicine and focuses on delivering the best results to the employees. The employees constantly adapt to the changing business environment so that the overall efficiency of the company can be enhanced. The company thrives on a culture of innovation and this in turn, enhances the decision-making process of the management. By 2030, the company is aiming to meet patient’s demands and it will be possible because the company considers its domestic and international employees as their greatest asset. The employees are given economic and social opportunities to grow along with the company.
Effect of culture shock and cultural differences
Additionally, culture differences are more prominent when someone directly deals with the real-life culture. The person might experience culture shock after experiencing the trends in another culture. This is because the person is supposed to adjust to new challenges within a short time. The existing thinking patterns might be challenged, and this might be challenging for the individual. Moreover, culture shock leads to the development of negative feelings, notably for the host country. The feelings create an urge among the employees to return home. However, international businesses operate when different people from different backgrounds collaborate and coordinate with each other. Hence, in order to develop a right attitude, cultural awareness becomes a necessity. Particularly, the people sent to international locations for completing foreign assignments must have high cultural awareness. Similarly, the HR department should also possess high cultural awareness because the HR functions are demanding in nature. High levels of cross-cultural understanding are a necessity. However, the differences between etic and emic must be clear to the employees. Etic refers to the common aspects of a culture, while emic refers to specific aspects of a culture. Etic approach supposes that management principles and management practices are universal in nature. Therefore, these practices are applicable across all regions. It is also assumed that the local differences must be aligned or changed so that it aligns with the universal practices.
Figure 4: Culture Shock in Action
(Source: communicaid.com, 2020)
Therefore, the convergence theory has been developed from the etic approach. On the other hand, the divergence theory has been developed from the emic approach. Contrary to the etic approach, an emic approach suggests that management practices or principles are not at all universal in nature. They are mainly divergent and therefore, it is necessary to consider the local differences. The case of Japan can be considered to understand the application of etic and emic approach. It can be plausible to state that in terms of industrial performance, Japan might fall behind other international organisations if it fails to adapt to the practices prevalent in the U.S because the practices were assumed to be universal in nature. This is an example of the etic assumption. It can be stated that appreciation for both diversity and universality is the need of the hour. The divergence approach leads to the acceptance of cultural diversity while the convergence approach leads to the acceptance or appreciation for cultural commonalities.
Industry type
The industry can be divided into the multi-domestic industry and global industry. In the case of the former, the level of competition within one country is not affected by the level of competition across other countries. Industries such as retailing, insurance and distribution are independent of this kind of competition. On the other hand, a global industry is influenced by the level of competition in other countries. This is because a global industry is supposed to compete at an international level. Activities should be integrated according to the global standards. Moreover, in the case of the multi-domestic industry, the international firm is supposed to switch the existing global strategy into a domestic strategy. When a multinational firm operates within the global industry, there is a need for structuring the HR function so that the multinational firm can gain a competitive advantage internationally.
Figure 5: Industry characteristics based on local market adaptation and global integration
(Source: researchgate.net, 2020)
The need of reducing biases
In order to follow an international conception and enhance the HRM practices, the parent organisation should identify its biases and assumptions. The organisation should understand that the values of their home country are always reflected in the HRM activities of their host country. Moreover, the parent organisation is supposed to recognise that their ways might not be accepted universally. Both weaknesses and strengths are present in the organisation’s existing HRM activities. It should also be recognised that the foreign subsidiaries of the parent organisation might have more effective ways in order to manage people. The ways might not be good or bad, however, it could be effective at the local level. Further, the cultural differences must be usable as well as discussable. Lastly, it should be noted that the cross-cultural learning can be effective in managing people.
Organisation-based example
Research shows that within the advanced economies, notably in western countries, the compensation and reward systems are different. South Korean economy, one of the emerging ones, usually transfer its compensation and reward practices from the company’s headquarters to another economy, China, which is transitional in nature. Certain determining factors are present that leads to the transfer. The South Korean companies usually adopt the compensation practices and policies and “home-oriented” focal reward such as performance-based pay or base pay (Kang and Shen, 2015). Moreover, in order to tackle the expatriates, an integrative approach is chosen that also includes benefits and allowances. The South Korean companies also adopt a localised approach for the HCNs or Host Country Nationals. Moreover, it is also evident that the compensation and reward transfer is the result of the dominant effect of the home economy in comparison to the host economy. A lot of contextual differences exists between home and host nations, therefore, the reward and compensation systems varies as well. The contextual differences are related to economic development, compensation traditions and lastly living costs.
Necessity of considering the industry type
Due to globalisation, industries that operates at international levels faces competition and pressure to a certain degree. Hence, company must consider the type of industry in which it is operating before creating a strategy. In case of both domestic and international market, competition is one of the inevitable components. The global industry is composed of various domestic industries and these compete with each other on an international basis. In case of large industries, the operations are not affected by national boundaries or disparities in the economic structures. The value chain model can be useful in analysing the function of HRM within local industries as well as within industries that operate globally. The HRM is the basis or a support pillar for the enterprises. When a company operates within the domestic industry, the complexity is low. Similarly, when the same company needs to operate occasionally at international levels, it might need to work with international consulting firms along with specialised workers within the same industry. Similarly, the situation changes when the company operates within a global industry. In that case, the HRM is supposed to be structured in a way that will be directed by international standards of the business.
Essential duties of the HR department both at local and international levels
Research has been conducted on IHRM practices of the automotive industry in Pakistan and examination of key influencers of global standardisation has been done. Sustainable growth of the automotive industry in Pakistan is the result of internalised IHRM practices. It has been found that Pakistan’s automotive industry can flourish only when the “human side” of the industry will be considered. The people are the major drivers of growth both at an industry level as well as at the country level (Butt and Katuse, 2017). Moreover, the extent to which competition within an industry prevails has a direct link with the company’s ability to hire qualified staff. It implies that candidates usually seek out the industry giants and therefore, the need to advertise or spend money on attracting candidates is not a requirement. Hence, the management does not get involved in those activities. On the other hand, a small business that naturally occurs within the domestic market is in need of building a reputation or brand in the market. In order to fill critical positions, the small businesses seek out candidates actively and therefore, the HR department is supposed to develop its existing recruiting techniques. It can be done by promoting the company in a job fair. Moreover, in case of both domestic and International HRM, the HR department needs constantly enhance the compensation structure. It can be done by focussing on industry-specific surveys on salary. This in turn, would enhance the firm’s ability to stay in a competitive position by providing standardised wages.
Figure 6: HR duties both at local and international levels
(Source: sciencedirect.com, 2020)
Attitude of senior management/HR to international operations
Another variable that influences the differences between IHRM and domestic HRM is the senior manager and their attitudes. Without relevant experience associated with international business, managing the international operations might be a challenge. Corporate objectives and goals can be achieved only when the senior management can understand the “international character” of the business. The company might fail to achieve its corporate goals or long-term success if the management does not recognise the attitude requirements to operate in an international environment. The tendency to apply the same domestic attitudes in an international environment would result into failure. The secret of success is to “think globally” so that practices can be aligned with the needs of the international market. The HRM should be focussed on developing its international policies and implementing its international practices. When operating at a global level, the entire world should be considered as a “unique market”, and therefore, the senior management should focus on creating an integrated strategy that aligns globally. This is the only way of acquiring a competitive edge over other firms.
Figure 7: Factors that increase the trust of employees
(Source: researchgate.net, 2020)
Need for a broader perspective
The senior management needs to develop a broader perspective towards international HRM. Ensuring greater involvement in the employee’s private life can be beneficial. This is because in an international organisation, different combinations of workers from different countries come together. The employees might belong to the host country or from a third world country. Therefore, attitudes of management are one of the vital determining factors. Again, further research shows that failure in managing international operations occurs because the senior management might possess ethnocentrism or excessive regard for one’s own culture. Moreover, complete lack of cross-cultural perspectives also leads to challenges. Hence, the HR manager should consider using a perspective that is globally oriented. The IHR manager should also have a direct connection with the values and attitudes of the overseas workers so that aligning the practices becomes less challenging. The need for being ultrasensitive arises at this point. The employees would feel accepted completely within the workplace.
Figure 8: Employees’ choice of the benefit that would improve their overall relationship with managers
(Source: interact-intranet.com, 2020)
Research shows that biases during the recruitment process exist within the hospitality industry. Managers discriminate against the senior employees (Furunes and Mykletun, 2007). The case of Norwegian hospitality sector has been considered. The managers are most likely to prefer younger people during the recruitment process. It is mainly due to the stereotypical attitude of managers towards senior individuals. Ageism is associated with seniority, and therefore, it is a negative attitude that should be challenged. It also implies the failure of diversity management. Traditional stereotypical thinking is still prevalent, and age diversity has not been entirely accepted in modern workplaces.
Conclusion
The report is based on HRM practices across domestic and international locations. It has been noted that differences within the domestic HRM and IHRM prevail because various factors influence the overall management practices in the home country and host country. In the beginning, a brief introduction has been given regarding the need for separating the domestic and international management practices. Both the concepts have been defined. Thereafter, the five common variables affecting the practices were outlined. Three important variables have been chosen in order to complete the requirements of the report. It is evident that the resources of a locally based organisation are different from the resources of a globally operating organisation. In case of global firms, the entire world is considered as a resource and therefore, the IHRM practices should be designed based on the geographic location. The cultural environment, industry type and senior management’s attitude plays a vital role in shaping both domestic and international HRM. Each of these factors has been discussed in detail, and relevant organisation-specific examples have been included as well. It can be concluded that the success of an organisation operating at the domestic or international level depends on the degree to which the management adapts and changes to the external needs.
Reference List
Bajpai Singh, L. and Dutch, M.A., 2014. Changing Socio-Cultural Environment and Human Resource Practices. Amity Global Business Review, 9.
Butt, M. and Katuse, P., 2017. International human resource management practices in automotive industry in Pakistan: Implications for economic growth.
Cook, S.N. and Yanow, D., 2011. Culture and organisational learning. Journal of Management Inquiry, 20(4), pp.362-379.
Csl.com. 2020. [online] Available at: https://www.csl.com/-/media/csl/documents/annual-report-docs/csl-ltd-annual-report-2019-full.pdf?la=en-us&hash=AC57DA1C6E85B66162B25238509C47596E1CA401 [Accessed 30 Apr. 2020].
Furunes, T. and Mykletun, R.J., 2007. Why diversity management fails: Metaphor analyses unveil manager attitudes. International Journal of Hospitality Management, 26(4), pp.974-990.
Kang, H. and Shen, J., 2015. Transfer or localise? International reward and compensation practices of South Korean multinational enterprises in China. Asia Pacific Business Review, 21(2), pp.211-227.
Raletić-Jotanović, S., Ratković, M. and Dašić, D., 2015. The differences between human resource management in domestic and international environment. Vojno delo, 67(6), pp.159-175.