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Introduction to IHRMModule 1
Definition, reasons for going global, Approaches to IHRM, Difference between IHRM and Domestic HRM, Reasons for emergence of IHRM, Models of IHRM-Matching model, Harvard Model, Contextual Model, 5P Model European Model, Models of SHRM in Multinational Companies, Internationalization of HRM: Socio-cultural context, Organizational dynamics and IHRM: Role of culture in International HRM, Culture and employee management issues, Organizational Processes in IHRM, Linking HR to International expansion strategies, The Challenges of International Human Resource Management
Syllabus
Utilizing and managing human resources effectively in International business
6 hr activities of HRM:o Human resource planningo Staffingo Performance managemento Training & developmento Compensationo Industrial relations
Introduction: Definition of IHRM
Morgan, a management philosopher presents three dimensions:
1.Broad activities [6 hr activities] of HRM- procurement, allocating and utilizing
2. Country categories involved in IHRM : A host country where subsidiary is located A home country where firm’s head quarter
is located Other countries that may be the source of
labour, finance etc.
Contd..
3. Employee categories of an international firm:
Host country nationals [HCNs] Parent country nationals [PCNs] Third Country nationals [TCNs]
Morgan defines IHRM as interplay among these 3 dimensions; human resource activities, types of employees and countries of operation
Contd..
Model of IHRM
Expatriates- employee who is working and temporarily residing in a foreign country. Also known as ‘international assignees’.
These are the employees who are transferred out of their home base into some other area of the international operations.
These are the staff who are transferred out of the company
PCNs are always expatriates. Inpatriate- staff who are transferred into a particular
company
Transpatriates- employees who are moved between subsidiaries.
Expatriates/Inpatriates/Transpatriates-meaning
International assignments create expatriates
1. International Opportunities2. Reactive reasons Globalization of competitors- competition is one
of the strong reasons to go international. If it does not go, someone else will capture the market.
Trade barriers- restrictive trade barriers like tariff, quotas, political reasons and other trade practices can make export to foreign country expensive, hence other measures to go global are adopted
Customer demand –acts as a primary reason for some companies.
Reasons for going global
3. Proactive reasons Economies of scale- Companies can achieve
economies of scale by access to various regional resources by setting up huge capacities and distribution centers at low cost.
Growth opportunities- where home market is matured , new market provides place to invest surplus profit and underutilize resources.
Resource access and cost savings- access to low cost resources and better control over resources, access to inputs like raw materials and lower transportation cost.
Incentives [by government]- tax exemptions, tax holidays, subsidy loans at cheaper rates, access to properties etc.
Reasons for going global contd..
There are 4 terms to describe MNCs approaches to managing and staffing their subsidiaries:
Ethnocentric Polycentric Geocentric Regiocentric
These terms are derived from the work of Perlmutter [1969]
Approaches to IHRM
Ethnocentric Approach Subsidiaries are managed by expatriates from
home country. Strategic decisions, key positions at domestic
and foreign operations are held by management personal of headquarters.
Polycentric Approach MNC treats each subsidiary as a distinct
national entity with some decision making autonomy.
Subsidiary are managed by local nationals PCNs are rarely transferred to foreign subsidiary
operations.
Geocentric Approach MNC takes a worldwide approach to its
operations, recognizing that each part makes a unique contribution with its unique competence
PCN, HCN, TCN can be found in key positions any where including at top level at Head Quarter.
Regiocentric Approach MNC utilizes a geocentric strategy but in a limited
way Personnel may move outside their country but
only within the particular geographic region Regional managers may not be promoted to HQ,
but enjoy autonomy in decision making to some extent.
More HR activities The need for a broader perspective More involvement in employees’ personal lives
Changes in emphasis as the workforce mix of expatriates and locals varies
Risk exposure Broader external influences
Differences between IHRM and Domestic HRM
[Moderate: either diminish or accentuate] Usually we argue that complexity in
operating in different countries and employing different national categories of employees is a key variable which differentiates between domestic and International HRM.
But there are other variables which either reduce or increase gap/difference between Domestic and IHRM.
Variables that moderate differences between IHRM and Domestic HRM
Variables that moderate differences between IHRM and Domestic HRM contd..
Globalization leads more MNCs and greater mobilization of human resources
Recognition of HR management as a success factor in international business
Failure in international assignments is costly and it is dependent on employees
Implementation of international strategies is often challenging because its difficult to get competent people
Changing organization structure. Now you have networked structure or virtual, boundary less, horizontal communication channels. HR plays significant role in such organizations
Cultures are built by proactive HR policies and actions.
Reasons for emergence of IHRM / Growing interest in IHRM
1. Matching Model: Highlights resource aspect of HRM Emphasizes efficient utilization of human
resources to meet organizational objectives
Focuses a right fit between organizational strategy, organizational structure and HRM systems
MODELS of IHRM
2. Harvard Model: Stresses human aspect of HRM More concerned with the employer-
employee relationship Highlights interests of different
stakeholders in organization [ shareholders, management, employees, government, community etc] and how their interests are related to objectives of management.
3. Contextual Model: Organizations may follow different pathways
in order to achieve same results This is because there is a linkage between
external environment context [socio-economic, technological, political legal, competitive] and internal organizational context [culture, structure, leadership etc]
These linkages directly form the strategies of HRM
4. 5 P Model: 5 HR elements [philosophies, policies,
programs, practices and processes] melding with strategic needs
This model shows how each are interrelated and explains their importance in achieving organizations’ needs.
5. European Model: Based on argument that European
organizations are constrained at both international [European Union] and national level by national culture and legislation.
They also consider patterns of ownership at organizational level and trade unions involvement and consultative arrangements at HRM level.
These constraints need to be accommodated while forming HRM model in the company.
SHRM means process of developing HRM practices, programmes and policies that help to achieve organizational goals
HR strategic movement process involves actions on seven areas:
Understand the environment Formulate strategies Indentify competitive advantages Define organization’s capabilities Indentify HR practices that matches with
organizational capabilities Link HR strategy with business strategy Implement strategies
Models of SHRM in multinational companies
SHRM ModelFirm
strategy
HR Behavio
ur
HR Capital
Pool [Skills, Abilitie
s]
Institutional / political Forces
Firm Level
outcomes
HRM Practices
Resource based view of firm
Cybernetic Agency/Transaction costs
Resource Dependence
Behavioural Approach
Various internal and external factors of the company influences human resource management. One of the major external factors is the socio-cultural context/ environment within which company operates.
Culture: customs, beliefs, norms and values that guide the behaviour of the people in a society and that are passed from one generation to the next.
Levels of culture: dominant culture, sub culture, organizational culture and occupational culture
Multiculturalism: people from different culture interact regularly
Internationalization of HRM- Socio cultural context
Socio- cultural context: how HRM practices are influenced by socio - cultural factors
National Culture
Organizational Strategies &
policies
National HRM practices & practices
Contingent Variables
Institutions
Dynamic Business
Environment
Industrial Sector
4 approaches & role of culture1. Ethnocentricism: home country’s culture is
imposed on subsidiaries2. Polycentricism: Subsidiary adopts local
culture 3. Regiocentricism: subsidiary adopts that
region’s culture
Role of Culture in IHRM
4. Geocentricism: where talents can be hired from any place MNC becomes cosmopolitan Global managers are able to adjust any
business environment Adjust to cultural differences But in this case additional training cost
should be invested on that Inpatriate and compensation may be higher than its own employees
Contd..
Assertiveness Future orientation Performance orientation Human orientation Gender orientation In group collectivism Societal collectivism Power distance Uncertainty avoidance
9 cultural dimensions that differentiates one society from another
Attitude to power and authority Tolerance for ambiguity & attitude to risk
Interpersonal trust Individualism and collectivism Preference for certain leadership behaviours
Culture and employee management issues
Organizational processes in IHRM
CEO
International Division structure
VP International Operations
Production Marketing Finance Personnel
EgyptFrance Japan
Home office Departments
Overseas subsidiaries
Functional structure]
CEO
Production Marketing Finance Personnel
Plant B Brazil
Plant A Germany
Geographic Structure
CEO
Europe Latin America Division
N. America and Pacific
Division
UK Venezuela
Italy
Manufacturing Marketing
Finance
USJapan
Canada
Product Structure CEO
Product Division A
Product Division C
Product Division B
Europe Far EastAustralia
UK SpainGermany
Manufacturing
MarketingFinance
Matrix structureCEO
Global Marketing
Global Finance
Global Operatio
ns
Global HR
Global Product
Manager A
Global Product
Manager C
Global Product
Manager B
International expansion strategies New set up Alliances or joint venture Global integration- mega national firm Multi domestic firm strategy M&A
Linking HR to International expansion strategies
Composition of new board Who will occupy which job? Culture assessment Creating a new culture Effective communication Retaining talent Aligning per evaluation and reward systems Managing transition [transformation
process]
HR should focus on
The extent of HR involvement in the acquisition process depends on the strategy behind the acquisition
Acquisition strategies
Absorption: acquired company confirms to acquire- cultural assimilation
Preservation: Acquired company retains its independence-cultural autonomy
Transformation: both companies find new ways of operating- cultural transformation
Best of both: additive from both the sides-Cultural integration
Reverse merger: unusual case of acquired company dictating terms-cultural assimilation
High
Low
High
Deg
ree o
f ch
an
ge in
acq
uir
ed
com
pan
y
Degree of change in acquiring company
Strategies for post merger outcome
High failure rates of expatriation and repatriation Deployment- getting the right mix of skills in the
organization regardless of geographical location Knowledge and innovation dissemination- managing
critical knowledge and speed of information flow Talent identification and development- identify capable
people who are able to function effectively Barriers to women in IHRM- gender differentiation International ethics
language [spoken, written, body] Different labour laws and different political climate Different values and attitudes e.g., time, achievement,
risk taking Roles of religion- sacred objects, prayer, taboos, holidays Education level attained
Main challenges in IHRM