1. International Human Resource Management Module 1: Introduction

2. Definition International Human Resource Management is the procurement, allocation, utilization, and motivation of human resources in international business Broad human resource activities are procurement, allocation, and utilization.

3. In Global organizations, HR mgrs. Are required to achieve 2 conflicting strategic objectives- To integrate HR policies and practices across a no of subsidiaries in different countries To make HRM practices sufficiently flexible to accommodate different business and cultural settings To balance integration and differentiation is a biggest challenge for HR managers in global organizations

4. According to Taylor “Human resource management issues, functions and policies and practices that result from the strategic activities of MNCs and that impact on the international concerns and goals of those enterprises” According to Morgan “IHRM is the interplay among these three dimensions – human resource activities, types of employees, and countries of operations” -

6. Categories of Employees The national or country categories involved The host country where subsidiary country may be located The home country where the firm is headquartered Other countries that may be the source of labor, finance and other inputs. – Host country nationals (HCNs) – Parent country nationals (PCNs) – Third country nationals (TCNs)

7. The drivers of internationalization of business Globalization of Markets Falling Barriers to Trade and Investment Technological Innovation Customer Demands Growth Opportunities Economies of scale Availability of Resources & Cost Savings

8. Stages in IHRM Stage 1: Domestic Operations Firms offer products or services that are designed to primarily serve consumers in the domestic market (e.g., law firms) Stage 2: Export Operations Products and services are opened up to markets in other countries, but production facilities remain in Canada (e.g., McCain Foods). HRM: Provides sales force with skills and motivation to succeed in these foreign markets.

9. Stage 3: Subsidiaries or Joint Ventures Some operational facilities (e.g., parts assembly) are physically moved to other countries. Corporate headquarters in home country has high control over foreign operations. HRM: Provides expatriates and local employees with knowledge and skills to succeed in the foreign country. Stages of Internationalization

10. Stage 4: Multinational Operations Much more prevalent international dispersion of production and service provision facilities. Decentralization of decision-making more prevalent, but ―major ‖ personnel decisions still made within home country. Expatriates still primarily manage foreign facilities. Stages of Internationalization

11. Stage 5: Transnational Operations Little allegiance to the firm‘s country of origin. Large-scale decentralization of decision-making. Dominant role of expatriates is removed. Each business unit across the globe has the freedom to make and implement its own HRM policies and practices. Diversity as an Organizational and HR Challenge in MNE

12. Difference between Domestic HRM and IHRM More HR activities - International taxation, international relocation and orientation, administrative services for expatriates, host-government relations, and language and translation services. The need for broader perspective - Differential compensations, Diversity management, Global managers, Greater need for global mindset, Orientation towards continuous change, Ability to absorb cultural shock and attempt to minimize its severity, Political, economic, and social sensitivity and knowledge of many countries, Leadership skills, cultural environment etc.

13. The importance of cultural awareness - Culturally insensitive attitudes and behaviors stemming from ignorance or from misguided beliefs not only are inappropriate but often cause international business failure Industry type Multidomestic industry – Competition in each country is essentially independent of competition in another countries – Retail, Insurance, Distribution – Role of HR will be more of domestic in structure and orientation. – Support primary activities in each domestic market to achieve competitive advantage through either cost/efficiency or through product/service differentiation. Global industry- Competitive position in one country is significantly influenced by its position in another country. E.g., Airlines, PCs, Consumer electronics

14. Reliance of the multinational on its home-country domestic market - No US industry in top 15 MNC‘s with higher ratio of foreign assets to total assets and foreign sales to total sales. Complexity Increasingly complex environment Need of right people Need of good IHRM practices More complexity due to political, and economic changes.

15. Development of IHRM Global competition Growth in mergers, acquisitions and alliances Organization restructuring Advances in technology and telecommunication Global competition

16. Levels of competition are increasing with the spread and diversity of international business. Issues related to business ethics and social responsibility has become major concern for HR managers. Growth of mergers, acquisitions, and alliances Cross cultural issues Work practices Downsizing

17. Theoretical models of IHRM Matching Model Harvard Model Contextual Model 5-P Model European Model

18. Matching Model Developed by Fomburn et al., 1984 Highlights the resource aspect of HRM Emphasize on efficient utilization of human resources to meet organizational objectives. It also emphasises on ‘right fit’ between organizational strategies, organizational structure and HRM systems

20. Harvard Model Developed by Beer et al., 1984 It stresses the ‘human’, soft, aspect of HRM and is more concerned with the employer–employee relationship. It highlights the interests of different stakeholders in the organisation (such as shareholders, management, employee groups, government, community, unions) and how their interests are related to the objectives of management

22. Contextual Model Developed by Hendry et al., 1988; Hendry and Pettigrew, 1992 It is based on the premise that organisations may follow a number of different pathways in order to achieve the same results. This is so mainly because of the existence of a number of linkages between external environmental context (socio-economic, technological, political-legal and competitive) and internal organisational context (culture, structure, leadership, task technology and business output). These linkages contribute directly to forming the content of an organisation’s HRM.

23. 5-P Model Developed by Schuler, 1992 It melds five human resource activities (philosophies, policies, programmes, practices and processes) with strategic needs. The model shows the interrelatedness of these activities and explains their significance in achieving the organisation’s needs.

24. Philosophy - Statements of how organization values and treats employees; essentially culture of the organization Policies - Expressions of shared values and guidelines for action on employee-related business issues Programs - Coordinated and strategized approaches to initiate, disseminate, and sustain strategic organizational change efforts necessitated by strategic business needs Practices - HR practices motivate behaviors that allow individuals to assume roles consistent with organization‘s strategic objectives. Three categories of roles: Leadership Managerial Operational Processes - Continuum of participation by all employees in specific activities to facilitate formulation and implementation of other activities

25. European Model Developed by Brewster, 1993, 1995 It is based on the argument that European organisations are constrained at both international (European Union) and national level by national culture and legislation. They are also constrained at the organisational level by patterns of ownership and at the HRM level by trade union involvement and consultative arrangements. These constraints need to be accommodated while forming a model of HRM.

26. Strategic Human Resource Management Strategic view of IHRM is required to better explain the complexity and challenges of managing IHRM issues. Theoretical framework has been derived from a strategic approach using a multiple methodological approach is that of De Cieri and Dowling. Their framework assumes that MNEs operate in the context of worldwide conditions, including the influences of industry (global or multidomestic) and regional, national, and local markets that include geopolitical, legal, socio-cultural, and economic characteristics

28. Model of SHRM in Multinational Companies Successful SHRM efforts begin with identification of strategic needs Employee participation is critical to linking strategy and HR practices Strategic HR depends on systematic and analytical mindset Corporate HR departments can have impact on organization‘s efforts to launch strategic initiatives

29. Evolution of MNE‘s Three Stages of Evolution 1. Export stage initial inquiries => firms rely on export agents expansion of export sales further expansion þ foreign sales branch or assembly operations (to save transport cost)

30. 2. Foreign Production Stage There is a limit to foreign sales (tariffs, NTBs) DFI versus Licensing Once the firm chooses foreign production as a method of delivering goods to foreign markets, it must decide whether to establish a foreign production subsidiary or license the technology to a foreign firm.

31. Licensing Licensing is usually first experience (because it is easy) e.g.: Kentucky Fried Chicken in the U.K. it does not require any capital expenditure it is not risky payment = a fixed % of sales Problem: the parent firm cannot exercise any managerial control over the licensee (it is independent) The licensee may transfer industrial secrets to another independent firm, thereby creating a rival.

32. Direct Investment It requires the decision of top management because it is a critical step. It is risky (lack of information) (US -> Canada)plants are established in several countries licensing is switched from independent producers to its subsidiaries, export continues

33. 3. Multinational Stage The company becomes a multinational enterprise when it begins to plan, organize and coordinate production, marketing, R&D, financing, and staffing. For each of these operations, the firm must find the best location. A company whose foreign sales are 25% or more of total sales. This ratio is high for small countries, but low for large countries, e.g. Nestle (98%: Dutch), Phillips (94%: Swiss).

34. Motives for Direct Foreign Investment New MNCs do not pop up randomly in foreign nations. It is the result of conscious planning by corporate managers. Investment flows from regions of low anticipated profits to those of high returns. Growth motive A company may have reached a plateau satisfying domestic demand, which is not growing. Looking for new markets. Protection in the importing countries Foreign direct investment is one way to expand bypassing protective instruments in the importing country. E.g., European Community: imposed common external tariff against outsiders. US companies circumvented these barriers by setting up subsidiaries.

35. Market competition The most certain method of preventing actual or potential competition is to acquire foreign businesses. GM purchased Monarch (GM Canada) and Opel (GM Germany). It did not buy Toyota, Datsun (Nissan) and Volkswagen. They later became competitors. Cost reduction United Fruit has established banana-producing facilities in Honduras. Cheap foreign labor. Labor costs tend to differ among nations. MNCs can hold down costs by locating part of all their productive facilities abroad. (Maquildoras) Supplying Products to Foreign Buyers

36. Barriers in effective global HRM 1. Political & Legal Factors Throughout the world, the political & legal systems are diversified. The organizations deal with the political & legal systems that are fairly stable, particularly in the developed countries of Europe. On the other hand, in certain other countries, there are relatively unstable political & legal systems. The governments of certain countries face coups, corruption & dictatorial rules that are all badly affecting the legal & business environment. Due to internal politics, the legal systems in certain countries are also becoming unstable. In this way the variations in the political & legal systems around the world become as a hurdle in the effective global human resource management.

37. 2. Cultural factors: Every country has its own unique culture which is slightly similar to the cultures of other countries of the world. The global human resource management should apply such policies & procedure in the organization which are in accordance with the local culture of the country or region. Even most of the employees of the foreign subsidiary should be hired from the host country. There may be certain cultural norms that are allowed in one country but are prohibited in another country. So, cultural factor becomes a barrier for the smooth working of the global human resource management of any organization. Therefore the expatriates of the organization should also take into account the cultural norms & values of the host country to some extent. The management should make ensure that the implemented wider corporate culture is being followed in all the subsidiaries of the globally operating organization.

38. 3. Economic Factors: The economic factor is also regarded as a barrier for the effective global human resource management because there is not any single economic system operating globally. In case of the capitalist system, the efficiency & productivity are focused by the management of the organization by making such policies & procedures that promote efficiency. On the other system of economics, which is the socialist, the elimination of unemployment is concentrated by the management of the organization by sacrificing the productivity & efficiency which is definitely harmful for the organization. So before development & implementation of any human resource policy or practice of the management of the organization, the economic barrier of the global operations should be properly comprehended by the organization. Moreover, the difference in the labor costs around the world becomes a serious problem for a global business.

39. 4. Labor/Management Relations Factor: The labour relations varies from one country to another country of the world. The policies & procedures of the global human resource management are affected by the relations of workers & employees with the management

40. Socio-cultural context of IHRM A key factor in the increasing internationalization of employment is that there are cultural differences between nations – differences in individual nation’s values and attitudes Many of us have stereotypes e.g., cheerful & enthusiastic Spaniards, work-obsessed Americans, polite Japanese etc. There are many research evidence which shows that different nationalities do have different values and that these affect the way people organize, conduct and manage work An awareness of cultural differences is therefore an essential part of an international HR manager‘s brief The normal HR activities will be affected by cultural values and practices in the respective host countries. Hence care must be taken when deciding whether or not to adopt standardized HR policies and practices throughout the world.

41. Definitions of culture ‘Culture consists in patterned ways of thinking, feeling, and reacting, acquired and transmitted mainly by symbols, constituting the distinctive achievements of human groups... including their embodiments in artefacts; the essential core of culture consists of Traditional [...] ideas and especially their attached values...

42. Introduction to cross-cultural management research The first contributions to cross-cultural management research were made in the early 1960s The resulting unforeseen conflicts and low performance of many foreign business enterprises began to create doubts about the assumption that management research and knowledge from the English-speaking world was readily transferrable to other countries and cultures This problem was initially the focus of research in US universities and is now studied at business schools and universities around the world, which has led to the well-established broad research field of International Business

43. The goals of cross-cultural management studies include: Description of organizational behavior within countries and cultures Comparison of organizational behavior between countries and cultures Explanation and improvement of interaction between employees, customers, suppliers or business partners from different countries and cultures.

44. The common feature of cross-cultural management research is the basic assumption that there are differences between management practices in various countries and that the respective environment is of particular significance in explaining these differences. This perspective rejects the approach of researchers who assume universal transferability of management knowledge – i.e. a universalistic, culture-free approach to management. Cross-cultural studies have often been the focus of substantial debate and criticism. The rather a theoretical foundations of some cross-cultural research and methodological weaknesses in many empirical studies are problematic. These problems have frequently caused contradictory research results and led to vigorous debate in this field. Despite numerous critical arguments, the knowledge gained from intercultural comparative research is a first step towards understanding the complexity of international management and HRM.

45. Types of organizational culture Organizational culture is observed as behavioral regularities, as typified by common language, terminology and ritual. There are 3 aspects which determine MNC organizational culture: The relationship between the employees and their organization The hierarchical system of authority that defines the roles of managers and subordinates The general views that employee’s hold about the MNC’s purpose, destiny and their places in them

46. Incubator (Fulfillment- Oriented culture) Guided Missile (Fulfillment- Oriented culture) Family (Person- Oriented culture) Eiffel Tower (Role- Oriented culture ) People Task Egalitarian Hierarchical

47. Role of culture in IHRM Recruitment & Selection High Performance Orientation – Job related Knowledge & technical skill Low Performance Orientation – Relational skills & Social Class affiliation Collectivist Culture e.g., Japan Compensation and Benefits Performance oriented – Formal, objective and systematic Culture with high power distance-pay system will be subjective and most decisions will be taken by top management.

48. Performance Appraisal Individualistic societies – Emphasis on personal development Collectivist culture – highlight on group based achievement Training & Development Cultural variations exist both with regard to importance as well as content & methods of T&D activities Different culture perceive T&D’s relevance differently & also individual learning styles are inherently culture-bound and hence different design & methods need to be adopted for training across the culture. High power distance – doesn’t prefer participative training technics

49. Country & Regional Culture Hofstede Cultural Dimension Trompenaars’ Cultural Dimension Kluchhohn and Strodtbeck Cultural Dimension GLOBE cultural Dimensions

50. Hofstede Cultural Dimension Uncertainity Avoidance Power Distance Individualism Vs Collectivism Masculanity vs Feminity Confucianism Dynamism

51. Uncertainty avoidance dimension measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty. Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations; the manager was expected to issue clear instructions, and subordinates‘ initiatives were tightly controlled. Lower uncertainty avoidance cultures were characterized by a greater readiness to take risks and less emotional resistance to change

52. Power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities. According to Hofstede, high power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth. Low power distance cultures were found in societies that tried to play down such inequalities as much as possible

53. Individualism versus Collectivism dimension focused on the relationship between the individual and his or her fellows. In individualistic societies, the ties between individuals were loose and individual achievement and freedom were highly valued. In societies where collectivism was emphasized, the ties between individuals were tight. In such societies, people were born into collectives, such as extended families, and everyone was supposed to look after the interest of his or her collective.

54. Hofstede's masculinity versus femininity dimension looked at the relationship between gender and work roles. In masculine cultures, roles of male and female were sharply differentiated and traditional "masculine values," such as achievement and the effective exercise of power, determined cultural ideals. In feminine cultures, roles of male and female were less sharply distinguished, and little differentiation was made between men and women in the same job

55. According to Hofstede, Confucian dynamism captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors. The label refers to these "values" being derived from Confucian teachings. As might be expected, East Asian countries such as Japan, Hong Kong, and Thailand scored high on Confucian dynamism, while nations such as the United States and Canada scored low. Hofstede and his associates went on to argue that their evidence suggested that nations with higher economic growth rates scored high on Confucian dynamism and low on individualism-the implication being Confucianism is good for growth. However, subsequent studies have shown that this finding does not hold up under more sophisticated statistical analysis. During the past decade, countries with high individualism and low Confucian dynamics such as the United States have attained high growth rates, while some Confucian cultures such as Japan have had stagnant economic growth

56. Country Culture versus MNE Culture Each country develops unique patterns of values, norms, beliefs and acceptable behavior, similarly each organization also develops its own culture Most MNE’s create corporate personalities that give employee a template for how to behave, how to deal with customer, DM etc E.g., Giving senior management position to women, Strongly favoring egalitarian and participative management styles

57. Culture & Employee Management Issues Attitude to power and authority and its implication for employee management Tolerance for ambiguity and attitude to risk and their implications for employee management Interpersonal trust and its implications for employee management Individualism and collectivism and their implications for employee management Preference for certain leadership behaviors and its implications for employee management

58. Impact of Country Culture in IHRM Country culture influence the extent to which leadership, teams and employee activities It influences the org’s values and norms E.g., German employees at IBM facility in Munich, will be influences more by German culture than by IBM’s culture Hence, national culture is more influential than organizational culture