International Human Resources Management

Professional employees working in a country other than their own are  called expatriates (shortened as expats).

It is not easy to manage human resources because employees come into companies with different educational backgrounds, occupations, motivation, gender identities, ages, and other various demographic and occupational features.

As firms go global, finding, managing, and retaining human resources become especially challenging because all of those activities become more complicated within the actual reality of different national cultures and ways of doing business in those cultures. Therefore, we need to define and understand international human resources management if we are to understand the business done on an international level.

International human resources management (IHRM) refers to the planning, recruiting and selecting, training and developing, evaluating, and retaining employees for the international operations of international companies.

The dimensions of IHRM are activity dimension, regional dimension, and employee-group dimension. IHRM consists of different activities (i.e., recruitment and selection, training and development, performance appraisal and compensation, labor relations, leadership) which form the first dimension. The second dimension is related to the regional aspect which includes whether HRM is carried out in the homecountry, host country, or other countries; and the third dimension is concerned with different employee groups, i.e., whether they are homecountry nationals, host-country nationals, or from other countries (third-country nationals). (See Figure 5.1 on page 119)

-New HR responsibilities

-Need for a broader perspective in compensation

-Greater involvement in personal lives of employees

-Managing the foreigner-local mix

-Greater risk exposure

-External influences of governments and cultures

In managing human resources at an international level, the first decision will be about where the employees for various positions should come from. Employees can come from three sources: (1) a parent (home) country, (2) a host country, and (3) a third country. A parent country is a country in which the company’s corporate headquarters is located.

Employees are categorized as: (a) parent-country (home-country) nationals, (b) host-country nationals, and (c) third-country nationals. Parentcountry nationals (PCNs) are employees who were  born and live in the parent (home) country. Hostcountry nationals (HCNs) are those employees who were born and raised in the host country. Third-country nationals (TCNs) are employees who were born in a country other than the parent and host countries but work in the host country.

An MNE is said to be following an ethnocentric approach when strategic decisions are made at the headquarters; and critical positions in both the domestic and foreign operations of an MNE are filled by personnel from the parent country (PCNs) with no or minimal autonomy delegated to the foreign subsidiaries.

If it is difficult for an MNE to articulate, specify, or standardize its core competency, it becomes invaluable to post a home-country manager with direct experience in developing, applying, and protecting that core competency. Firms may pursue this policy because locally qualified people are not always available, especially in developing and newly industrialized countries.  Some companies also feel that PCNs sent from the home country will look out for the company’s interests more earnestly than will host-country
natives.

Firstly, relocating managers from the home country is usually expensive.  Secondly, being away from friends and relatives can be a severe source of stress for the PCNs. Thirdly, the more the host country’s culture is different from the home country’s culture, the more it puts pressure on the PCN.  Lastly, host governments can be discontent about this practice if they expect the MNE to employ locals in positions at any level.

When an MNE treats each subsidiary as a distinct national entity, it is said to be adopting a polycentric approach. Acknowledging that the business environment and business practices in another country are different from those at the home country, the host country operation will be allowed more decision-making autonomy and will be staffed primarily by HCNs.

The major drawback of polycentric staffing is the potential for losing control of the host-country operation. When a company employs the natives of each country to manage local operations, it runs the risk of becoming a collection of loosely connected, largely autonomous national operations. Finding themselves in a dilemma over where to pay allegiance, HCNs might, from time to time, prefer to be loyal to local colleagues instead of headquarters in a distant country. Related to this autonomy and allegiance problem, there is also the potential for disengagement from the parent company. As there are a few slots for expatriates in the polycentric approach, HCNs do not have enough opportunities to work outside their home country.

MNEs which think more globally in terms of their operations, recognizing that each part (subsidiaries and headquarters) makes a unique contribution with its unique competence are said to pursue a geocentric approach to staffing. Here, all the subsidiary managers are regarded as equal to those at the headquarters.  IBM is an excellent example of an MNE attempting to use such an approach.

Aiming for an optimal allocation and synergy effects, the geocentric attitude emphasizes interdependencies and strives for a collaborative approach between the headquarters and subsidiaries as well as among subsidiaries. The local operation may choose PCNs, HCNs, or TCNs depending on the operation’s specific needs. In this way, an international executive team can be formed
(Wall, Minocha and Rees, 2010: 322) and global managers who can easily adjust to working in any part of the world can be developed.

The regiocentric approach is a mix between the polycentric and the geocentric approaches. With the assumption that adaptation within regions is more comfortable than between regions, the MNE divides its operations into geographic regions and moves staff within particular regions, e.g., Europe, America, Asia, rather than between regions. Here, reliance on the regional group cooperation of the local managers takes precedence, and the regions operate relatively independently from one another. It will not be easy for the regional managers to be promoted to headquarters positions, but they can enjoy a certain degree of regional autonomy in decision making.

A good side of this staffing approach is that the disadvantages often encountered when using employees from the home or host country can sometimes be avoided by sending TCNs to fill the management posts. Another advantage is that it allows interaction between executives who are transferred to regional headquarters from sub-units in the region and PCNs posted to the regional headquarters. This enables better integration at the regional level. Through regiocentric staffing, the MNE would also reflect sensitivity to local conditions since local subunits are staffed almost entirely by HCNs, thus recognizing the need for differentiation globally.

Firstly, an employer should not count on cost savings in using TCNs. Although they may come from countries where salary scales are lower, for instance, in most of the nations of northwestern Europe, salaries for experienced managerial and technical personnel may be higher than what is paid in many developed countries, such as the United States. Secondly, this approach can constrain the MNE from taking a global stance by creating a sort of federalism at the regional rather than the national level . Another drawback is that even though this approach moves career prospects from national to the regional
level, it still limits the movement to the parent headquarters . Lastly, this approach may not stand in the MNE for long.

If the company is likely to send PCNs abroad, then before going abroad, the company will frequently encourage the PCNs to study the language and culture of the country to which they may go. Before embarking on their expat assignment, the PCNs may be sent on short trips abroad to handle special assignments and to be exposed to foreign surroundings.

The training and development activities undertaken for HCNs will differ from those used for home-country nationals in that host-country nationals are more likely to lack the knowledge of the company as a whole and the knowledge of advanced business techniques, particularly those that are specific to the business operations of the MNE. Many multinationals try to solve the business technique problem by hiring host-country students upon their graduation from home-country business schools.

TCNs may accept lower wages and benefits than will employees from the home country, and they may come from a culture similar to that of the host country. Also, they may have worked for another unit of the MNE and thus be familiar with the company’s policies, procedures, and people. This approach can simplify the training and development requirements for such recruits.

They may be foreigners hired in the home country and sent to a host-country subsidiary either because they have - previous experience there or because that country’s culture is similar to their own. They may have been initially home-country personnel who were sent abroad and became dissatisfied with the job but not with the host country. After leaving the firm that sent them abroad, they take positions with subsidiaries of multinationals from differenthome countries. Another way in which TCNs can be created is by promotion within an MNE.

With the belief that understanding a host country’s culture will help the employee empathize with that culture and enhance his or her effectiveness in dealing with host-country nationals, the major part of the training and development programs will include cultural training. Besides the host country’s culture, this training may include history, politics, economy, religion, and social and business practices. If possible, arranging a familiarization trip with the whole family to the host country before the formal  transfer can serve to ease the culture shock.

Through better cultural awareness comes the ability to see the forest rather than the trees. Developing this conceptual skill – seeing the big picture – prepares those managers for future high-level executive positions. Management development programs help build a unifying corporate culture by socializing new managers into the norms and value systems of the firm. In-house company training programs and intense interaction during off-site training can foster esprit de corps (shared experiences), informal networks, perhaps a company language or jargon as well as the development of technical competencies.

A largely overlooked but critically important issue in the training and development of expatriate managers is to help them make the transition back to their home country. This training and development are called repatriation. Many employees experience what is called the reverse culture shock upon returning home. One reason for this to happen is that the expatriate and his/her family assume that things have stayed the same at home, while in fact, friends may have changed, moved; or new managers may have been hired along with new employees. Although the returning manager may be on the same level as other managers, s/he may have less informal authority and clout than those who have been working in the particular office for a while. Considering the headquarters, often when the expatriates return home, they face an organization that does not know what they have done for the past few years, that does not know how to use their new knowledge, and  that does not particularly care. In the worst cases,  reentering employees have to scrounge for jobs, or firms will create standby positions that do not use the expatriate’s skills and capabilities and fail to make the most of the business investment the firm has made in that individual.

Moreover, because of being unable or unwilling, sometimes expatriates could not perform the tasks or objectives determined by the parent company; this situation which explains the expatriate return to home country before the completed assignment period is defined as expatriate failure, and the rates of expatriate failure are very high

Performance appraisal is defined as an employee’s  current and/or past performance relative to the predetermined performance standards. Performance management is an extension of performance appraisal, which is “a process that enables the MNE to evaluate and continuously improve individual, subsidiary unit and corporate performance, against clearly defined, pre-set goals and targets”. In a similar vein, international performance management is defined as, “a designed, implemented and evaluated intervention of an MNE for the purpose of managing the performance of its global workforce so that performance at the individual, team, or organizational level contributes to the attainment of strategic global objectives and results in overall MNE desired performance”

Objective criteria (also defined as hard criteria) are about the quantifiable factors which can be directly measured based on tangible outcomes, such as market share, total revenues, and return on investment.

Subjective criteria (also defined as soft criteria), include judgments, and consider factors that are difficult to quantify which are based on traits or relationships; examples for these criteria include factors such as the expatriate’s interpersonal skills and leadership style, teamwork and customer orientation.

Individual Factors: One of the critical challenges for international performance management is about the question that by whom the appraisal should be performed.

Organizational Factors: There are various organizational factors that form a barrier to effective international performance management. One of the most significant problematic issues about international performance management is lack of objective (invalid) or reliable performance criteria, which leads to non-comparable results between headquarters and subsidiaries. 

Contextual Factors: The host-country for MNEs poses significant challenges for international performance management. Schuler et al. (2002) state that cross-cultural interpersonal qualities, foreign laws and customs, uncertain and unpredictable factors, and the integration of host location with other subsidiaries, are the significant challenges for the performance management of MNEs.

Compensation has two main components: direct financial payments and indirect financial payments. Direct financial payments include wages, salaries, incentives, commissions, and bonuses; whereas indirect financial payments include financial benefits like employer-paid insurance. International compensation is defined as “the provision of monetary and nonmonetary rewards, including base salary, benefits, perquisites, long and short-term incentives, valued by employees based on their relative contributions to MNE performance”

• Under which country’s compensation programs should employees be covered: home-country’s, host-country’s? Or should there be a specially designed program for everyone?
• How should the potential gaps or inequities in pension and health care coverage be bridged? Can employees be covered under a single plan throughout their careers, particularly if they move around during those careers?
• Is the benefits coverage adequate for all employees? Is the benefits package equitable compared with the benefits of peers in other countries, both within and without parent company? Should employees be covered under the provisions of selected home and international programs?
• How can the cost of social benefits be minimized? Can coverage under employees’ home-country social programs be maintained, even as they move around? Should there be a global umbrella program to provide equitable coverage for everyone?
• What are the tax effects to employers and employees of special benefit arrangements for all global employees?

According to Dunlop (1958: 16), a national industrial relations system consists of four basic components (Figure 5.6), which are actors or parties (employees, employers, government), rules (both substantive and procedural resulting from mutual cooperation and oppositions between actors), an ideology (which binds separate actors one another), and the environmental context.