TOPIC 8 8.0 INTERNATIONAL HUMAN RESOURCE MANAGEMENT

TOPIC 8

8.0 INTERNATIONAL HUMAN RESOURCE MANAGEMENT

 

Trainee should be able to;

  • -Explain the concept of IHRM
  • -Discuss the characteristics of IHRM
  • -Discuss human resource management challenges in IHRM
  • – Discuss ways of managing the challenges.

 

8.1 Concept of IHRM

IHRM is concerned with HRM issues that cross national boundaries or are conducted in locations other than the home country headquarters. IHRM is concerned with the relationships between the HRM activities of organisations and the foreign environments in which the organisations operate. IHRM includes comparative HRM studies. International Business must procure, motivate, retain and effectively utilize services of people both at the corporate office and at the foreign plant. The process of procuring, allocation, effectively utilizing human resources in an international business is called International Human Resources Management. IHRM can be defined as set of activities aimed managing organizational human resources at international level to achieve organizational objectives and achieve competitive advantage over competitors at national and international level.

The  reasons for growing interest in IHRM are: Globalization of business leading to the need  mobilization of resources; Effective management of human resources; To minimize the risk of underperformance or failure in overseas assignments; Implementation of international strategies by competent managerial personnel to man overseas assignments; Movement from traditional hierarchical organizational structures towards the network organization; and the need to play a significant role in implementing and control of strategies in an international business.

Types of International Employees

International employees can be placed in three different classifications.  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; Host country nationals (HCNs) which are those employees of an organization who are the citizens of the country in which the foreign subsidiary is located; and Third Country Nationals who are the citizens of a country other than the country where the organization is headquartered and the country that is hosting the subsidiary.

 

Several types of expatriates may be differentiated by job assignment, because not all individuals who decide to work as expatriates are similar in the assignments undertaken. Volunteer expatriates are persons who want to work abroad for a period of time because of career or self-development interests. Often, these expatriates volunteer for shorter-term assignments of less than a year so that they can experience other cultures and travel to desired parts of the world. Traditional expatriates are professionals and managers assigned to work in foreign operations for one to three years. They then rotate back to the parent corporation in the home country. Career development expatriates are individuals placed in foreign jobs to develop the international management capabilities of the firm. They may serve one to three “tours” in different countries; so that they can develop a broader understanding of international operations. Global expatriates comprise those individuals who move from one country to another. Often, they prefer to work internationally rather than in the home country.

 

International HRM Approaches

There are mainly four IHRM approaches. These include ethnocentric approach, polycentric approach, geocentric approach, and regiocentric approach. The suitability of the type of staffing policy adopted by MNEs depends on the strategy used by the company.

  1. a) Ethnocentric approach

In the ethnocentric approach, all key positions in the host country subsidiary are filled by nationals of the parent company. The policy makes most sense for firms pursuing an international strategy.

 

An ethnocentric staffing policy is attractive when: the firm believes there is a lack of qualified individuals in the host country to fill senior management positions; the firm sees an ethnocentric staffing policy as the best way to maintain a unified corporate culture; and when the firm wants to transfer knowledge of core competencies to the foreign operation. The disadvantages of ethnocentric approach are that it limits the advancement of host country nationals. This can lead to resentment, lower productivity, and increased turnover and it can lead to cultural myopia (the firm’s failure to understand host-country cultural differences that require different approaches to marketing and management)

  1. b) Polycentric approach

Polycentric approaches to staffing policy emphasis on recruiting host country nationals to manage the subsidiaries in their own country. This means that host country nationals are recruited to manage subsidiaries in their own country, while parent country nationals occupy the key positions at corporate headquarters. This allows the MNE to take lower profile in sensitive economic and political situations and helps to avoid intercultural management problems. This approach minimizes the dangers of cultural myopia, but it also helps create a gap between home and host country operations. The polycentric policy is best suited to firms pursuing a localization strategy.

 

The advantages of the polycentric policy are that the firm is less likely to suffer from cultural myopia and it may be less expensive to implement .The disadvantages of the polycentric policy are that host country nationals have few opportunities to gain foreign experience and so cannot progress beyond senior positions in their own subsidiaries as well as a gap can form between host country managers and parent country managers

  1. c) Geocentric approach

This approach utilizes the best people for all key jobs throughout the organization, whatever their nationality or whatever the geographical location of the post to be filled. In this way an international executive team can be developed. This approach is consistent with building a strong unifying culture and informal management network. It makes sense for firms pursuing either a global or transnational strategy to adopt geocentric staffing policies. However immigration policies of national governments may limit the ability of a firm to pursue geocentric staffing policy.

 

The advantages of a geocentric approach to staffing are that it: enables the firm to make the best use of its human resources; builds a cadre of international executives who feel at home working in a number of different cultures. The disadvantages of geocentric approach include difficulties with immigration laws and high costs associated with implementing the strategy

 

Training and Development in an International Context

Training and development refer to the efforts of the MNC to provide education and other programs to better equip its employees to do their job. Such training at work may involve formal training, informal training, learning embedded in the workplace and other forms of learning. Training and development increases in complexity as MNEs moves abroad. Some of the training programs involve: Environmental briefing regarding geography, climate, housing and schools ; Cultural orientation designed to familiarize the individual with cultural institutions and value systems of the host country; Cultural assimilations to provide participants with inter-cultural encounters; Language training; Sensitivity training designed to help develop attitudinal flexibility; and field experience which sends the participants to the country of assignment to get them used to the emotional stress of living and working with people of different culture.

 

8.2 Characteristics of IHRM

There are some commonalities in IHRM and domestic HRM practices, particularly in areas like; HR planning and staffing, recruitment and selection, appraisal and development, rewards, etc the main distinctions, however, lies in the fact that while domestic HRM is involved with employees within only one national boundary, IHRM deals with three national or country categories.

 

International HRM differs from domestic HRM in a number of ways. One difference is that IHRM has to manage the complexities of operating in, and employing people from, different countries and cultures. A major reason for the failure of an international venture is the lack of understanding of the differences between managing employees in the domestic environment and in a foreign one. A management style successful in the domestic environment often fails if applied to a foreign environment without the appropriate modifications. The reasons that IHRM is more complex than domestic HRM are described below.

 

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.

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.

 

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.

 

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.

 

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 Kenyan government to set up its subsidiary in Kenya, the American company is under legal obligations to provide employment to local residents.

 

8.3 Human Resource Management Challenges in IHRM

Globalization is the system of interaction among the countries of the world in order to develop the global economy.  Globalization involves technological, economic, political, and cultural exchanges made possible largely by advances in communication, transportation, and infrastructure. The advent of the era of globalization along with the advancements in information technology (IT) has transferred the world around us. It has brought to center stage the importance of human resources, more than ever before. The pressures it poses on IHRM include: Remaining competitive throughout the world; Efficient Locally; Responsive; Flexible and adaptive Capable to transforming learning across their globally dispersed units. Other obstacles to effective HR management are cross-cultural adaptation, different organizational/workforce values, differences in management style, and management turnover. Doing business globally requires that adaptations be made to reflect these factors. It is crucial that such concerns be seen as interrelated by managers and professionals as they do business and establish operations globally. Each of those factors will be examined briefly.

a) Legal and Political Factors

The nature and stability of political systems vary from country to country. In many nations, the legal and political systems are turbulent. Some governments regularly are overthrown by military coups. Others are ruled by dictators and despots who use their power to require international firms to buy goods and services from host-country firms owned or controlled by the rulers. In some parts of the world there is pervasive corruption, while in others governments’ changes constantly. Also, legal systems vary in character and stability, with business contracts sometimes becoming unenforceable because of internal political factors.

 

HR regulations and laws also vary among countries in character and detail. In many countries, laws on labor unions and employment make it difficult to reduce the number of workers because required payments to former employees can be very high. In some countries, laws address issues such as employment discrimination and sexual harassment. In others, because of religious or ethical differences, employment discrimination may be an accepted practice. All of these factors reveal that it is crucial for HR professionals to conduct a comprehensive review of the political environment and employment-related laws before beginning operations in a country. The role and nature of labor unions should be a part of that review.

b) Economic Factors

Different countries have different economic systems. Some operate with a modified version of communism, which has essentially failed. But as the government attempts to move to a more mixed model, it is using unemployment and layoffs to reduce government enterprises bloated with too many workers. Many lesser-developed nations are receptive to foreign investment in order to create jobs for their growing populations. Global firms often obtain significantly cheaper labor rates in these countries than they do in Western Europe, Japan, and the United States. However, whether firms can realize significant profits in developing nations may be determined by currency fluctuations and restrictions on transfer of earnings.

c) Cultural Factors

Cultural forces represent another important concern affecting international HR management. Culture is composed of the societal forces affecting the values, beliefs, and actions of a distinct group of people. Cultural differences certainly exist between nations, but significant cultural differences exist within countries also. One only has to look at the conflicts caused by religion or ethnicity parts of the world to see the importance of culture on international organizations. Getting individuals from different ethnic or tribal backgrounds working together may be difficult in some parts of the world. Culture can lead to ethical differences among countries.

d) Power Distance

The dimension of power distance refers to the inequality among the people of a nation. In countries such as Germany, the Netherlands, and the United States, there is a smaller power distance which means there is less inequality. As power distance increases, there are greater status and authority differences between superiors and subordinates. One way in which differences on this dimension affect HR activities is that the reactions to management authority differ among cultures. A more autocratic approach to managing is more common in countries with greater power distance while participatory management is prevalent where power distance is small.

e) Individualism

Another dimension of culture identified by Hofstede is individualism, which is the extent to which people in a country prefer to act as individuals instead of members of groups. On this dimension, people in African countries tend to be less individualistic and more group-oriented, whereas those in most European countries score the highest in individualism. An implication of these differences is that more collective action and less individual competition is likely in those countries that deemphasize individualism.

f)Talent Gap

Finding and retaining the talent for highly skilled jobs or the one that knows the national and international markets can be tough. In some countries there is acute shortage of people with the required skills. In such cases, an organization may need the help of immigration departments or to leverage on the international talent pool. Sometimes, organizations may rely on executive search firms to search for the right employees who may not be aware of organizational culture.

g) Labor Law Conflict

Changes in various labor laws, from a local level to national and international level is very relevant in making sure employees perform tasks in accordance with them. An international human resource manager must be aware of the labour laws in all the host nations where the organization is operating as well as international regulations which must be complied with.

  1. h) Global Health and Safety
    Health and safety issues may be of concern to employees overseas, and security has become a very difficult issue in certain areas of the world. Safety and health laws and regulations vary from country to country, ranging from virtually nonexistent to very stringent. With more and more expatriates working internationally, especially in some of the less-developed countries, significant health and safety issues are arising, and addressing these issues is part of the HR role. Another consideration is provision of emergency evacuation services. For instance, how to evacuate and care for an expatriate employee who is working in a country when war breaks out or there are disease outbreaks such as Ebola.
  2. i) International Security and Terrorism

As more firms operate internationally, the threat of terrorist actions against those firms and the employees working for them increases. Many of the terrorism acts target company facilities and offices. Nevertheless, individual employees and their families living abroad must constantly be aware of security issues. Countries vary in the extent to which they are likely to see violence at the workplace. In addition, Kidnapping, murder, home invasion, robberies, and car-jacking are relatively frequent in some places.

8.4 Managing the Challenges HRM.

The following are some of the strategies that can be used to manage challenges of IHRM:

  1. a) Developing an international approach

A truly international approach to human resource management must consider:

  • An explicit recognition by the parent organization that its own peculiar ways of managing human resources reflect some of the assumptions and values of its home culture.
  • An explicit recognition by the parent organization that its peculiar ways are neither universally better nor worse than others, but are different and likely to exhibit strengths and weaknesses, particularly abroad.
  • An explicit recognition by the parent organization that its foreign subsidiaries may have other preferred ways of managing people that are neither intrinsically better nor worse, but could possibly be more effective locally.
  • Willingness from headquarters not only to acknowledge cultural differences, but also to take action in order to make them discussable and therefore useable.
  • The building of a genuine belief by all parties that more creative and effective ways of managing people could be developed as a result of cross-cultural learning.
  1. b) Think Globally and Act Locally

The cultural differences can be managed by ‘thinking globally and acting locally’. This means that an international balancing act is required, which leads to the fundamental assumption that: ‘Balancing the needs of co-ordination, control and autonomy and maintaining the appropriate balance are critical to the success of the multinational company.’ To achieve this balancing act, there are six capabilities that enable firms to integrate and concentrate international activities and also separate and adopt local activities. These are: being able to determine core activities and non-core activities; achieving consistency while allowing flexibility; building global brand equity while honoring local customs; obtaining leverage (bigger is better) while achieving focus (smaller is better); sharing learning and creating new knowledge; and engendering a global perspective while ensuring local accountability.

  1. C) Managing Expatriates

The management of expatriates is a major factor determining success or failure in international business. Expatriates are expensive; they can cost three or four times as much as the employment of the same individual at home. They are difficult to manage because of the problems associated with adapting to and working in unfamiliar environments, concerns about their development and careers, difficulties encountered when they re-enter their parent company after an overseas assignment, and how they should be remunerated. Resourcing, recruitment and selection policies to address all these issues are required.

d)Role specifications

Role specifications should take note of the behaviours required for those who work internationally. International workers should be able to:

  • recognize the diversity of overseas countries;
  • accept differences between countries as a fact and adjust to these differences effectively;
  • tolerate and adjust to local conditions;
  • cope in the long term with a large variety of foreign contexts;
  • manage local operations and personnel abroad effectively;
  • gain acceptance as a representative of one’s company abroad
  • obtain and interpret information about foreign national contexts (institutions, legislations, practices, market specifics, etc);
  • inform and communicate effectively with a foreign environment about the home company’s policies;
  • take into account the foreign environment when negotiating contracts and partnerships;
  • identify and accept adjustments to basic product specifications in order to meet the needs of the foreign market;
  • develop elements of a common framework for company strategies, policies and operations;
  • Accept that the practices that will operate best in an overseas environment will not necessarily be the same as the company’s ‘home’ practices.

8.5 Review Questions

  1. Distinguish between global HRM and IHRM
  2. Explain five factors that have influenced the growth of IHRM
  3. Discuss three approaches of IHRM
  4. Discuss five challenges of IHRM
  5. Outline five factors affecting IHRM

 

References

1.Armstrong,M.,(2006), A Handbook of Human Resource Practice (10th Ed),Koganpage.London

2.Dessler& Cole (2011), Human Resources Management in Canada (11th Ed) Pearson Canada Inc.

3.Joshi, M.,(2013),Human Resource Management (1st Ed), Manmohan. Bookboon.com

4.Wall, S., Minocha, S., and Rees, B. (2010). International Business, (3rd Edition), Prentice Hall

Appendix: KNEC Sample Papers.

Note: The KNEC theory and practice of human resource management paper consists of seven questions all carrying twenty marks. Candidates are required to answer five out of the seven questions.

KNEC JULY 2009

  1. a) Explain the reasons that would make an organization prefer to adopt on-the-job training rater that off-the-job training programme for its employees
  2. b) Explain the benefits that may accrue from an organization from establishing a health scheme for all its workers

 

  1. a) Explain five ways in which ineffective appraisal may contribute to poor relations between management and subordinate sin an organization
  2. b) Explain the reasons that may lead to separation of an employee from an organization

 

  1. a) Kaba Ltd has been experiencing an increased rate of accidents resulting to employees deaths and injuries. Outline the measures that should be taken by the management to reduce the accidents

b)Mambo Company is in the process of designing a benefits structure that is expected to enhance performance of its employees. Explain the requirements that the structure must meet I n order to achieve the intended objective.

  1. a) Highlight the benefits that may accrue to a company that carries out staff performance appraisal
  2. b) Explain the obligations of an employee to his employer when resigning from his job

 

  1. a) There are various statutory deductions that can be made from an employee salary. Explain the ways in which five of such deductions may benefit an employee.
  2. b) Outline the legal requirements that an applicant person should meet in order to be registered as a manager of a retirement benefits scheme

 

  1. a) Explain the benefits that an organization may derive from using job rotation as a method of staff development)
  2. b) Outline the ways in which an organization may benefit from using a performance based remuneration for its workers

 

  1. a) Masani Ltd is a multi-National Corporation which operates in several countries. For each of these countries the company has put in place different remuneration for its employees give the reasons that may account for the different schemes
  2. b) Fasha, the Human Resource Manager at Tuamini Ltd has noticed that some employees in the organization have developed defensive attitudes in their relationship with other employees. Outline the measures that Fasha can Take to assist the employee overcome this attitude.

 

 

 

KNEC NOVEMBER 2013

  1. a) Highlight the factors that a Human Resource Manager should consider when determining merit pay for employees in an organization
  2. b) Explain the benefits that an organization may get fro staffing its international operations with national s from host country

 

  1. a) Explain the characteristics that differentiate fringe benefits from other benefits that are offered by organizations
  2. b) Explain the circumstances under which a Human Resource Manager may opt to use the team approach in appraising the performance of employees in an organization

 

  1. a) The management of human resources at the international level has certain characteristics. Explain these characteristics
  2. b) The management of Blanco Ltd conducts employee exit interviews on an ongoing basis. Highlight the reasons that may account for this practice

 

  1. a) Explain five factors that may cause job dissatisfaction among employees in an organization
  2. b) Explain five benefits that an organization m ay drive from the provision of safe work environment for its employees
  3. a) Explain the ways through which a counselor may help an employee manage work related stress I an organization
  4. b) Describe five methods that a Human Resource Manager may adopt when training employees in an organization

 

  1. a) Explain five benefits that an organization may obtain from adopting a group wide incentive scheme for its employees.
  2. b) Outline five health and safety issues that a human resource manager may have to address in organizations today

 

  1. a) Explain five objectives that an organization may set to achieve in the training of its managerial staff
  2. b) Explain the reasons that may make it necessary for an organization to conduct employee performance appraisal

 

KNEC JULY 2012

  1. a) Mataifa Ltd is a multinational company which operates in different countries across the world. Explain the challenges that may be encountered in carrying out human resource management activities in the company
  2. b) Highlight the measures that an organization should take to minimize accidents in the workplace

 

  1. a) Explain the benefits that a firm may obtain from carrying to employee performance appraisal
  2. b) Highlight the circumstances under which an organization may use on-the-job training for its employees

 

  1. a) ABC Co. Ltd intends to retrench a number of employees as a cost cutting measure. Explain the ethical considerations that should be taken into account when carrying out the exercise.
  2. b) Highlight five types of individual behavior that may necessitate counseling for an employee.

 

  1. a) Tena Ltd, a newly established firm is in the process of developing an employee benefits policy. Highlight the objectives that such a policy should aim to achieve
  2. b) Describe five methods that can be used to carry out employee performance appraisal

 

  1. a) Even though employee training is an expensive undertaking for most organizations, it is still a necessary exercise. Outline five reasons that may justify such spending
  2. b) Multi National Companies often have to make a choice between staffing international operations with local employees or foreigners. Explain the factors that should be considered in making such a decision.

 

  1. a) Explain the circumstances under which an organization may find it necessary to review the salaries of its employees
  2. b) Explain five non-financial benefits that may be provided to employees in an organization

 

  1. a) Explain the benefits that an organization may derive from carrying out exit interviews on employees leaving the organization

b) Explain the circumstances under which the team pay remuneration system may be considered appropriate in an organization.

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