International And Comparative Hrm Practices Business Essay

Human resource management has become an important issue as more and more firms operating internationally are in need to develop an understanding on how to operate competitively in an international business environment (Dowling & Welch, 2005).

As the global playing field has become more competitive, international companies are forced to

adopt efficient HRM and give more focus to their international than their domestic operations. Due

to the sensitivity of the issue, the concerned HR must address the key issues such as the impact of

globalization, environmental influences, cultural differences, the domestic HRM policies in different

countries and the global workforce involved in the action (Armstrong, 2009).

The aim of this essay is to provide a clear overview of the main similarities and differences between

domestic and international Human resource management. The essay will to some extent discuss the

practice of Human resource management at domestic level and the factors that increase its

complexity at international level. Finally, a conclusion will be drawn with an analysis of the research

findings.

2. DEFINATIONS OF DOMESTIC AND INTERNATIONAL HUMAN RESOURCE MANAGMENT

The gradual development of management activity from administration of personnel to strategic

planning of human resource, has given a competitive advantage to international companies.

Personnel management focused more on administrative functions and how to control the

employee rather than commit the employee to the organization strategic planning process. But

the present Human resource management system is structured more on the commitment of the

staff and involves the employee in the strategic planning and development process of the

organization. It also stress that organizations should consider their employees as assets than

variable costs (Armstrong, 2009, Torrington et al, 2005).

It is not quite easy to provide a precise and exact definition of Human resource

management due to the varying and different activities it refers to. One attempt made by Storey

(1995) is “HRM is a distinctive approach to employment and management which seeks to

achieve competitive advantage through the strategic development of a highly committed and

capable workforce using an array of cultural, structural and personal techniques.” On the other

hand, Human resource management is also defined as representing two activities. One is the

generic term concerned with the key objectives of human activity, which are the staffing,

performance, change management and administrative objectives, and the other activity is the

Human resource approach to carry out the activities stated above under the generic term one

(Torrington et al, 2005).

In order to clearly see the commonalities and differences shared by Domestic and International

human resource management, identifying the activities which change or evolve when HR goes

International is a vital point. To this effect, a module developed by Morgan (1986) is helpful. The

module presents three dimensions of International Human resource management with various

categories of HR activities, countries involved and employees in International activities. The first

dimension deals with the tasks of Human resource management; the procurement, allocation and

utilization of HR which goes further down to detailed activities mentioned earlier in this paper under

the ‘generic term’ explanation for HRM. The second dimension deals with three country categories;

the host country where the subsidiary is located, home country of the company’s headquarter, other

countries which are source of manpower, finance and other inputs. The third dimension is

concerned with three category of employees; Host-country nationals, Parent-country nationals and

Third-country nationals. Thence, according to Morgan (1986), the”… interplay between these three

dimensions is what define international Human resource management” (p.5) .

At this point, it shows that the elements or issues related to International HRM practice are complex,

higher in number and have broader scope than those found in Domestic HRM practice. One sensitive

issue is the staffing policy at international level. There are three types of international managers,

depending on their nationalities, local (parent country nationals, PCN), Host country nationals (HCN),

third country nationals(TCN) and international companies would hire managers/employees choosing

from one or mixing from the groups depending on the company’s business plan, technical

competence required for the position, availability of candidates or the company’s staffing policy.

Mostly international companies have three staffing policies/strategies.

– Ethnocentric strategy- This approach is when companies use parent company nationals in high

management areas. Nowadays this approach is not much in practice as it is seen to limit the

opportunity of other nationalities.

– Polycentric strategy- This approach demands the use of host country nationals at the subsidiaries,

while at headquarter level parent company nationals hold the high posts. Companies with

Ethnocentric strategy may change to Polycentric strategy when faced with shortcomings of qualified

managers.

– Geocentric strategy- This approach has an open door policy, inviting competent managers

regardless of their nationality. Companies using this strategy have the advantage of wide selection

and at the same time create a sense of diversity and unity among employees (David & Hugh, 2007,

Beardwell & Claydon, 2010).

In the next section, the paper will discuss if the HR practices at the domestic level can be

implemented at international level and would try to identify the factors that may facilitate or

hamper this process in general.

3. THE PRACTICE OF HUMAN RESOURCE MANAGMENT AT INTERNATIONAL AND

DOMESTIC LEVEL

The increasing business activity at international level has shown the importance of understanding

how Multinational companies can operate efficiently and effectively in the global dimension. In

general, International Human resource management involves the internationalizing company in

different practices such as diverse HR activities than found in the home country, greater involvement

in employees’ private lives, greater risk of exposure to the human and finance involved, more

external influence from the host country and greater complexity than found at Domestic HRM level

(Dowling & Welch, 2005). An International HR manager also needs to address the challenges due to

cross cultural differences, global competition, language and political differences when posted at

international level. Apart from the different intensity level of HR activities and strategic coordination

of different business units, both Domestic and International HRM share same major activities of

HRM. In addition, an International Human resource manager also needs to understand the degree of

‘soft or hard’ HRM present in the home base and foreign subsidiaries. Companies with Hard HRM

policy are more business focused and apply cost minimization systems while companies that engage

the employee in participation have Soft HRM policy (Storey, 2007).

In a more detail and supported by a diagram Cavusgil et al. (2008,) explain the challenges an

international manger is “…to ensure that the right person is in the right position at the right location

with the right pay.”(p.549) The factors that makes this activity more challenging is its complexity in

dealing with various aspects at international level. The diagram below details the different factors to

this effect.

Fig 1. Adapted from: Cavusgil et al. (2008). International business, Strategy, Management and the new reality. P.550 5

The above mentioned six factors will be explained briefly below;

New human resource responsibility- Broader and diverse activities like International tax

regulation, international relocation and orientation services for expatriates and language

translation services are some of the activities at international level.

Need for broader international perspective in compensation policy- with a different mix of

international staff exercising a fair compensation policy is one of the challenges to be

experienced.

Greater involvement in the employees personal lives- The company would have to deal with

the personal wellbeing of the expatriate or inpatriate serving out of their home country.

Their housing arrangement, children education, security, compensation, recreation and so

other needs needed to be followed up and arranged.

Managing the mix of expatriates versus locals- According to company’s policy, subsidiaries

may be staffed with a mix of different nationalities and managing the balance based on the

required skill and availability of manpower is another big task in the international

employment area.

Greater risk exposure- International staffs are exposed to political upheavals, kidnapping,

terrorism at foreign station and may demand compensation packages and security

arrangement. This would challenges companies financially and also in administration level.

External influence of the government and national culture- Local employment rules,

religious and cultural circumstances of the host country are also some factors needed to be

considered. (Cavusgil et al., 2008) 6

In another dimension, Dowling & Welch (2005) identified some factors that moderate the difference

between International and domestic Human resource management. According to Dowling, these

variables are cultural environment, the industry with which the Multinational is primarily involved,

the extent of reliance of the multinationals on its home country or domestic market and the

attitudes of senior management in international operation. Let us discuss to what extent these

variables would act as moderators between Domestic and International HRM practices.

3.1 INDUSTRY TYPE

One important variable that moderates International and Domestic Human resource management is

the type of industry an MNC is involved in and the international competition it faces.

Putting the business playing field in one straight line, let us say we have at one end of the

continuum a multi-domestic industry and the other end a global industry. The multi-domestic end

designates an industry operating in various countries but the completion in that industry type is

specific to the country. While at the other end, the global industry group is about an industry that

operates in different countries but interlinked with other industries in the same group (Dowling &

Welch, 2005).

Industries that fall under the multi-domestic structure have a free reign and are not strictly

controlled by the Headquarter of the MNC. They exhibit a highly decentralized HR structure and play

a passive role in the transfer of HR practices outside their boarder. Examples for this category can be

distribution agents and insurance companies. The global industry represents a model whereby HR

management transfers management practices abroad and these practices are replicated and put in

use by the subsidiaries. Example for this group includes commercial aircraft companies and

computer manufacturing companies (Dowling & Welch, 2004, Beardwell & Claydon, 2010).

3.2 CULTURE

The other influential factor in the moderating International and domestic Human resource

management is culture. (Dowling & Welch, 2004)

Armstrong (2009) define organization culture as “the patterns of values, norms, beliefs, attitudes

and assumption that may not have been articulated but shape the way in which the people in the

organization behave and get things done. ” (Armstrong, 2009, p384). Hofstede in his part put culture

as “the collective programming of the mind which distinguishes the members of one group or

category of people from another” (Hofstede, 2001, p9).

Other authors also have tried to define culture in different ways but in general it is expressed as a

process present in a social environment which holds the rules and regulations and the accepted

norms on how people are expected to behave. According to Hofstede (2001) there are five

independent dimensions of culture that explain the major difference between national groups. The

first is power distance. It is the degree to which members of an organization below the leadership

rank accept and expect the unequal distribution of power. High power distance shows an autocratic

leadership while low power distance denotes a democratic practice. Uncertainty avoidance refers to

the degree in which the people in a society feel uncomfortable for lack of structure and avoid

ambiguity. High uncertainty avoidance exist in countries having a strong rules and job scrutiny as

they try to avoid uncertainties and low uncertainty avoidance is registered in countries promoting

more lax and flexible social rules and regulations. Hofstede third dimension is the individualism

versus collectivism point. This dimension is concerned with the tendency of people’s response to

identifying themselves either in larger groups or more to themselves. High individualism is scored in

countries like the USA where people mostly identify themselves in small family groups while in low

individualistic countries people prefer to co-habit together and form large social groups. Masculinity

or femininity is the fourth dimension which refers to emotional roles attributed to both genders. It

balances the ‘tough’ masculine virtue of assertion and aggressiveness with the softer ‘feminine’

virtue of emotion and caring. Japan scores high on this regard while Norway is the lowest. The fifth

dimension is the long term versus short term orientation. This dimension deals with the recognition

of status in a society and perseverance. In general understanding the cultural norms of a foreign

country and adapting to the environment would benefit a company in an international level and

more importantly the HR policies of an organization are mostly influenced by the cultural practice

surrounding the organization. Human resource activities like hiring of staff, promoting, rewarding

and dismissal of employees are determined and affected by the cultural practice of the host country

(Dowling & Welch, 2005).

There is a school of thought that stresses the concept of Etics and Emics as an important aspect to

understanding culture in different settings. The Etic concept refers to the culture-common aspect

while the Emic approach deals with culture-specific concepts of behaviour. Understanding the

difference between the two concepts is helpful in cross-cultural business communication. To this

effect identifying which Human resource activity falls under Etic and which falls under Emic is also

crucial as it have an effect on the performance of companies outside their home country (Dowling &

Welch, 2005).

As noted earlier Emic refers to practices specific to one culture and are not transferrable across

cultures and Etic refers to the common practices found in different cultures and are transferrable

across cultures. Other dimensions of culture that may affect Human resource practices are the

political condition of the country where MNC operate, its economic rank and development and its

legal position. The Multinational companies need to be careful in countries with strong religious

views as they may have both civil and religious laws in use (Dowling & Welch, 2005).

3.3 RELIANCE OF THE MNC ON ITS HOME COUNTRY DOMESTIC MARKET

The status of the organization’s home domestic market is another moderator differentiating

International Human resource management and Domestic Human resource management.

One major factor pushing companies to go outside their home market is the small market demand in

their home country but also the international market may not be their target market for big

companies as they have high demand in their home country. Hence, when analysing company

performance, focusing only on the international market activity may not give the true stand or rank

of an international company. Some international companies originate from small countries with

small domestic demand or saturated domestic market and play a big role in the international

business activity. As an example ABB Company from Switzerland, INTERBREW from Belgium and we

can also mention PHILIPS Electronics originating from The Netherlands. United Nations Conference

on Trade and Development (UNCTAD) made an annual survey on foreign direct investment and with

some detailed analysis made, it published a list and it reveals that Coca cola and McDonalds are

ranked 27th and 39th respectively. As stated earlier the main reason for this situation is, these big

Multinational companies have high domestic demand in their home country; the USA. This may

influence to some extent on their international business practice as well as deprive their managers

an international management experience (Dowling & Welch, 2004).

3.4 MANAGMENT ORIENTATION

The last moderator presented by Dowling & Welch, (2004) is the level of orientation of senior

management. Managers from different cultures have different perceptions towards the overall

management system of a company. Lack of knowledge of competitive management skill on an

international level would lead to failure as it may fail to identify and address the issue differently

from the domestic management issue. 10

Beardwell and Claydon (2000) also observe the significance role Multinational companies play in the

world economy and with regard to the interrelation and restructuring of management issue at

international versus the national level wrote ‘ Management style, Strategies and policies are

shaped by home business system -the financial, institutional, legal and political framework – in

which they developed as domestic firms. Thus there is a persistent ‘country of origin’ effect in the

behaviour of MNCs whereby the country the MNC originates from, exerts a distinctive effect on the

management style, particularly the management of Human resource. ‘ (Beardwell and Claydon,

2010, p19)

On the other hand Taylor et al (1996) presents the exportive, adaptive and integrative models and

explain why the international companies adopt different form of Strategic International Human

resource management. The adoptive models reflect that Human resource policies are designed to

match the local environment of the subsidiary. There would be less transfer of Human resource

practices from the parent company and use differentiation as a priority point. In the exportive

orientation the subsidiary copies Human resource management policies from the parent company.

This upholds the integration of global management system and is ethnocentric in nature. The

integrative orientation model is the selection of ‘best HR practice’ across the world and is more

liberal and flexible in allowing the subsidiary adopts local HR practices (Beardwell and Claydon,

2010). But each orientation requires different consideration in line with the HR policies practiced by

the parent organization.

4. EXPATRIATES

One important point in International Human resource management is the movement of

employees across national boundaries to foreign country assignments. These employees are

termed as Expatriates while Employees transferred from subsidiary branch into Headquarters

5. CONCLUSION

Various factors are discussed that differentiate International Human resource management from

Domestic human resource management. The complexity of international Human resource

management lies in the additional knowledge and responsibilities needed for operating at

international level, and this is reflected in all the activities such as staffing, training and

development, Human resource planning and compensation and benefits. As the global market

competition increases International companies are expected to be responsive, flexible and

creative of a suitable company strategy and Human resource management system in order to

survive the competition. The Globalization of world economies has forced international

companies to adjust and continuously change their company strategy and Human

management systems in order to survive the competition. To this, the function of Human

resource management has become an important subject as it has proved to be a vital point to

the success of International as well as Domestic companies. In this paper various perspectives

towards International Human resource management are discussed briefly. Authors in the field

are also quoted on how the present and future shape of Human resource management is and

would be. In summary, the paper has tried to identify the main differences and similarities

between domestic and international Human resource management. From the literature review

presented, different internal and external factors are discussed to the complexity of

International human resource management, presented the various interpretation of HRM and

have tried to show how management and the market would dictate the shape of Human

resource management in general.

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