In the recent decade, international human resource management (IHRM) experienced tremendous research growth due to the increase number of organizations begun to extend their businesses into overseas markets. Multinational Corporation (MNC) is the term used to describe a business with overseas operation. Some of the main reasons for the growth of interest in IHRM are: 1) the number of MNC has increased with rapid growth of global competition which resulted in increased mobility of human resource. 2) Effective HRM strategy has been recognized as determinant of success or failure of organization. ) It is more difficult to exercise control and implementation of corporate strategy over remote subsidiaries with different culture and background.
(Fernando, 2006)In this article, we will discuss the difference between international and domestic human resource management and the challenges that organization faced when selecting, developing, motivating and maintaining the employees for the overseas assignment and how these issues will affect the strategy of the organization. Finally, the article will conclude that IHRM is complex, difficult and critical to global business success. Stone, 2008) It faces a lot of challenges as compared to domestic human resource management mainly due to the geographic dispersion and multiculturalism. Defining International Human Resource Management (IHRM) There is no consensus about what the term IHRM covers although most studies in the area have traditionally focused on the area of expatriation (Brewster and Harris, 1999). Taylor et al. (1996) define IHRM as a range of people management functions, processes and activities which involve consideration of more than one national context.Difference between Domestic Human Resource Management and International Human Resouce Management IHRM has similar human resource activities as domestic human resource management except that it is at a global level.
Regardless of whether they are specific to one or several countries, the external constraints such as political, legal, economic and cultural can significantly influence the way HR functions are carried out and the HR manager will have to plan for the human resources, do acquisition for the right people in the right number at the right time, train and develop, aintain and motivate the employees. As stated by Dowling and Welch (2005), the complexities of operating in different countries and employing different national categories of workers are a key variable that differentiates domestic and international HRM. Domestic HRM involved employees within only one national boundary while IHRM deals with three national or country categories: the parent country where the firm is usually headquartered; the host country where a subsidiary may be located; and other countries which may be the source of labour, finance or research and development.In addition, there are three types of employees of an international firm: parent-country nationals (PCNs); host-country nationals (HCNs) and third-country nationals (TCNs) (Dowling, Welch and Schuler, 1999). Dowling (1988) argues that the complexity of international HRM can be attributed to six factors such as more HR activities; the need for a broader perspective; more involvement in employees’ personal lives; change in emphasis as the workforce mix of expatriates and locals varies; risk exposure and broader external influences.Types of employees Managers can be hired three types of employees: parent country nationals; host country nationals and third country nationals. Parent country nationals (PCNs) are residents of the international business headquarter who are transferred to one of its overseas operations.
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Even though communications and coordination with headquarters is typically facilitated when PCNs are employed since they share a common culture and education background with headquarter but the number of PCNs employed in an organization is limited.This is due to the high cost in relocating and maintaining them in host country and the lack of knowledge of local laws, culture, economic conditions, social structure and political processes. Host country nationals (HCNs) are residents of the host country and are the most common choice of mid-level and lower-level job. Employing HCNs is popular because they are familiar with local laws, culture and economic. Even though HCNs may be cheaper than PCNs but HCNs may not be familiar with the firm’s corporate culture nor its business practices.Third country nationals (TCNs) are citizens of neither the headquarter nor of the host country. They are most likely to be employ in upper-level or technical positions.
Expatriate Expatriates are people working and residing in countries other than their native country. TCNs and PCNs are collectively known as expatriates. Organization usually takes great care in selecting expatriate as important roles are usually assigned to them and the cost of transferring wrong person overseas is enormous. It is known as expatriate failure when the expatriate return homes before the assignment is completed.The cost of failure would incur direct and indirect cost to the organizations and the expatriate. The indirect costs are harder to quantify in money terms and it includes causing the organization to lose its market share and expatriate may lose self-esteem. Dowling & Welch (2005) had concluded that factors moderating performance would include: spouse/ partner dissatisfaction; inability to adapt; difficulties with family adjustment in the new location; culture and language difficulties.
RecruitmentRecruiting and then deploying people to positions where they can perform effectively is a goal of most organizations whether domestic or international. Recruitment in international context is no easy job. Cross-national differences in work values influence how attractive a firm is perceived to be within any given culture because what individuals want from an employer may vary across culture. (Caligiuri, Lepak & Bonache, 2010) Therefore, companies should adopt different sets of selection practice and recruitment message based on the culture of the country they are recruiting.In MNCs, most positions are filled by HCNs as it is cheaper than hiring expatriate and they are more familiar with the local culture, economics and business environment. But it is still common to employ expatriate in management role since they had better understanding of the culture and business background. Expatriate selection is much more difficult than domestic selection.
The HR manager may have stringent screening process as these expatriate will be mostly being employ in management level that has greater responsibility for the business.Therefore, only experienced candidates will be selected for overseas assignment. On the other hand, candidates are becoming increasingly selective regarding their choice of overseas assignment making it more difficult for expatriate to be employed. Selection is often conducted through supervisor’s interview of candidates. With expatriate being employed in management role could mean that they are the ones interviewing the HCNs. In this case, it would be especially challenging as behaviors may be interpreted through a cultural lens and unintended inferences may be made.Caligiuri, Lepak & Bonache (2010) had concluded that firm that dedicates the time to answer the strategic questions about employee competencies globally – and, in turn, effectively selects for them within the various countries where it operates – has a competitive advantage within its global workforce for implementing global business strategy.
Training and Development The objective of training and development is to foster learning among the organizational members and to develop enriched and more capable workers, who, in turn, can enhance organizational competitiveness and effectiveness.As compared to domestic organization, multinational organization faces a number of unique challenges in training and developing function. This is due to that multinational firms differ in their operations from those of domestic firms in terms of geographic dispersion and multiculturalism. (Adler, 2002) It may be difficult when translating training material; therefore it is important to understand the importance of sensitivity to local language and culture. Sims (2002) states that how people learn and the methods of training with which they are comfortable vary across cultures.In order to achieve success in oversea assignment, it is very important to train the employees based on the economics and practices of foreign countries. Dessler G.
(2008), concluded that overseas candidate required special training like focusing on the impact of cultural differences, provides factual knowledge about the target country and provides skill building in areas like language and adjustment and adaptation skills. It is very challenging when come to designing training and development programs for multinational company. A unique training program for each subsidiary is needed based on the country language and culture.Performance Management Performance Management (PM) is a strategic HRM process that enables the immediate supervisor to evaluate the employee’s job performance and contribution towards the organization’s goals and rewards as outcomes of performance evaluation or appraisal. Training and development plan can be derived from PM to enhance the performance of the employees. As is stated by Armstrong (1994), PM involves the links to organizational strategy, setting individual performance goals, providing regular feedback on progress towards those goals, providing opportunities for improving and linking result and rewards.The scope of PM in multinational companies (MNCs) is much broader and complicated that in domestic companies.
This is due to that MNCs operate in many nationals with various types of employee groups. (Scullion H. & Linehan M. , 2005) Generally, an employee’s performance on the job is affected by their skills, perceptions, relationship with peers and superior, personal values, levels of motivation and commitment, the work environment and the level of challenge assigned to them.In a global context, this multiplicity of factors is further complicated by differences in culture, education, values and long distances between superior and subordinate. Fernando K. V.
(2006), had concluded that the challenge of organization’s when it comes to performance management is to retain and develop their talent; enable the mass majority to perform at their best level; align performance at all levels globally to effectively deploy strategy; recognize and motivate performance at all levels and help differentiate employee performance.PM in IHRM will require different program and criteria based on the country culture to effectively measure the performance of the employees. Simply exporting the head office program may end in disaster if it is not culturally sensitive. (Stone, 2008) Compensation Compensation is one of the most important HRM functions. In both IHRM and domestic HRM, compensation has the same common objectives that are to attract and retain the desired quality of employees and motivate employees to improve their performance and contribute their best to help to achieve the organization’s business objectives.According to resource-based theory, organizations that effectively apply appropriate compensation policies to maintain and retain knowledgeable and skilled employees can serve to protect this source of sustainable competitive advantage. As is stated by Dowling (1988), the key differences for HRM in MNCs lie in the increased scope; perspective and level of involvement required in employees’ live as well as the level of risk.
Compensation in IHRM has the greater risk.The risk increased by the complexities of operating within multiple diverse economic, employment and taxation regimes and through direct and indirect cost inefficiencies associated with international staff transfers and also with the implementation of an international compensation strategy. (Harzing & Ruysseveldt, 2004) In IHRM, the compensation strategy is influenced by a list of internal and external variable. Some of the variables would include: (internal) capacity to pay; competitive strategy; organizational culture; (external) labour market characteristics; local culture and parent nationality.The most challenging part is to reduce the risk of perceived inequities by maintaining companywide pay scales and policies. By doing so, the organization can ensure that the same job grade will be paid within the same narrow range. Implementing companywide pay scale might not be fair for those who are being transferred to country, like Japan, where the cost of living is higher.
One way to handle the problem is to pay a similar base salary companywide, and then add on various allowances according to individual market conditions. (Infante V. Determining equitable wage in many countries is no simple matter due to the differences in culture and market characteristic. As a result, one of the greatest difficulties in managing multinational compensation is establishing consistent compensation measures between countries. (Dessler, 2008) Industrial relations It is difficult to compare industrial relations systems and behavior across national boundaries as national differences in economic, political and legal systems produce markedly different industrial relations systems across countries.Trade unions may limit the strategic choices of multinationals in three ways by influencing wage levels to the extent that cost structure may become uncompetitive; by constraining the ability of MNCs to vary employment level at will and by hindering or preventing global integration of the operations of multinationals. Trade unions will be able to cause the MNCs to suffer labour cost disadvantages which may narrow their strategic options or caused industrial or political problems.
Therefore the HR managers should ensure that the practices adhere to and reinforce strategicHRM objectives and policies and are in harmony with the desired corporate culture, concessions granted in one location do not create damaging precedents for the rest of the organization and ethical and legal obligations are met. (Stone, 2008) MNCs must be well versed in international industrial relations and be aware that each industrial relations system is unique in order to translate organizational HRM objectives and policies into appropriate industrial relations practices on a worldwide scale. ConclusionIHRM is the handling of HRM activities at a global level. It is complex, difficult and critical to global business success. (Stone, 2008) It faces a lot of challenges as compared to domestic human resource management mainly due to the geographic dispersion and multiculturalism. Individual business units in various countries may have different HRM strategies due to the different in culture. Although the strategies might be different but somehow it is still intact with the global strategy as define by international business headquarter.
With this, the MNCs will have competitive advantage as compared to its competitors who are using HRM strategies at a national level. Challenge increases as they have to handle employees from three different nationals: parent country nationals (PCN), host country nationals (HCN) and third country nationals (TCN). Organization takes great care in selecting employees from parent country and third country which is known as expatriate. This is because the failure of the expatriate may cost the organization to lose its market share and the expatriate may lose self-esteem.Training and performance management in IHRM faces a number of unique challenges due to the different in culture. Different program needs to be design for different subsidiary. Simply exporting the head office program may end in disaster if it is not culturally sensitive.
(Stone, 2008) Compensation is one of the most important functions. The most challenging part in IHRM is that it needs to reduce the risk of perceived inequities by maintaining companywide pay scales and policies.Various allowances should be added on top of the basic salary especially for those expatriate who are located in countries with higher cost of living. Last but not least, MNCs need to be well versed in international industrial relations in order to translate organizational HRM objectives and policies into appropriate industrial relations practices on a world-wide scale.
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