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Ref No: 2004

International Human Resource Management

Question # 1:

Highlight the main factors contributing towards the growth of International HRM and also the main differences between HRM and International HRM. What unique challenges HR managers might experience while developing HRM systems for their overseas operations in comparison to domestic operations?

Answer:

International Human Resource Management:In the view of Schuler and Jackson (2005), there are several factors which are contributing towards the growth of International HRM in the modern era. Firstly, these factors include the rapid globalisation of businesses as the economies are continuously becoming liberal and it has led to increase in overseas operations of different companies. Secondly, the factors behind increasing growth in IHRM include the increase in number of Multinational companies and economic dominance of those companies. It can be noted that multinational companies are becoming stronger day by day with the passage of time and only few companies are dominating each industry globally. Further, in accordance with Brewster et al. (2007), consolidation by the way of mergers and acquisitions is another reason behind rapid growth of IHRM in the recent times. As the companies merge, the company’s capability to expand internationally increases most of the time. The relaxation in trade barriers have also put a significant impact on the internationalization of businesses because it allows them to produce in one country at a cheaper cost like China and run operations in multiple country to sell their production.

There are several other reasons behind the growth of IHRM as well which include the increasing cultural diversity in workplaces and underperformance of expatriates on foreign assignments in most of the cases. The IHRM allows us to study each and every aspect of the international employees in any business in the time of liberal economies and particular focus on globalisation (Brewster, 1997).

According to Need (2006), the management of domestic human resources and international human resources is different in certain aspect. First key difference is that the IHRM is a broader management conceptually as compared to domestic HRM because the backgrounds and demographics of the employees become more diverse in international companies when compared to the local companies. Since the IHRM looks at all the HR activities in a broader perspective so it involves more HR activities in comparison to the domestic HRM. The concentration towards certain activities is also increased like decision on compensation of a Host Country National is easier as compared to an expatriate, whether he / she is Parent Country National or Third Country National. Therefore, it can be stated that one key difference between domestic and international HRM is that HR manager’s role expands while managing international companies as compared to the domestic companies (Kotey and Sheridan, 2004). Another key difference between the Domestic HRM and IHRM is the risk exposure borne by the HR manager due to broadened activities. At the same time, the HR manager is faced with more external influences as it is part of culture in some societies. These are the key differences between the domestic HRM and IHRM suggesting that managers need to use more effective approach so that the management of broadened context is possible (Brewster et al., 2007; Kotey and Sheridan, 2004).

As prescribed by Schuler, Jackson and Tarique (2011), there are several challenges faced by the HR managers while managing an international company employing expatriates from different countries. First challenge faced by HR managers is the decision on recruitment in order to decide whether they are going to hire host country nationals (HCNs), parent country nationals (PCNs) or Third Country Nationals (TCNs). Often, the MNCs require a mix of HCNs, PCNs and TCNs so it becomes a challenge to manage the recruitment in IHRM. The MNEs need to decide on their HR orientation in order to decide the appropriate mix of human resources. Different types of HR orientation for MNEs include the polycentric approach, the geocentric approach and the ethnocentric approach. The approach needs to be decided before any recruitment is performed by the company (Luthans, Marsnik and Luthans, 1997). After an individual is selected to work in an international organisation, then another challenge arises i.e. compensation package of the selected employee. It is often difficult to decide a compensation package for an expatriate because the HR manager needs to decide a package that is competitive and includes allowances for moving to other country as well. Therefore, decision on the compensation of employee also becomes difficult in IHRM (Schuler, Jackson and Tarique, 2011; Luthans, Marsnik and Luthans, 1997).

Another importance function of HR is training and development of the employees; in IHRM, it becomes a challenge to provide similar trainings to employees in different countries to maintain their skills at an equal level (Brewster, 1997). Therefore, it can be summarised that there are various challenges faced by HR managers while developing systems for the IHRM as compared to domestic HRM as discussed above….