International and domestic HRM

INTRODUCTION

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 differences and similarities between

International and Domestic Human resource management. The essay will to some extent discuss the

practice of Human resource management in a domestic and international level together with the

factors that affect this process. Finally, a conclusion will be drawn with an analysis of the research

findings.

DEFINATIONS OF DOMESTIC AND INTERNATIONAL HUMAN RESOURCE MANAGMENT

When we look at the historic development of Human resource management, we find that it

evolves from the term Personnel management. 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 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, The interplay between these three

dimensions is what define international Human resource management (Dowling & Welch, 2005).

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. In order to

cope up with these complex issues the management may need to choose a strategy-ethnocentric,

Polycentric, regiocentric or geocentric – that best fits its business plan. In ethnocentric strategy, a

company uses identical Human resource strategy both at home and in its abroad business activity.

The polycentric strategy, with embracing the idea that each country is different in every aspect,

gives foreign subsidiaries autonomy to employ host country nationals and exercises local

appropriate HR practices to the subsidiary’s location. Regiocentric approach is when companies are

structured on a regional basis and best regional practices of HR are prescribed. Lastly, geocentric

strategy holds an open for all employment opportunity where, all nationals from the HQ, subsidiary

and third country may be employed. It upholds ‘Best person for the job’ motto and promotes higher

company integrity with less room for nationality (Storey, 2007).

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.

THE PRACTICE OF HUMAN RESOURCE MANAGMENT AT DOMESTIC AND INTERNATIONAL 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).

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.

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).

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).

2.3 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).

2.4 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.

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. BUSINESS INTEGRATION AND GLOBAL STRATEGY

As the global commerce is increasing so has the activities of International Human resource

management becomes an important and more complex than Domestic Human resource

management. While we acknowledge the expanding business activity, there is a school of

thought that support and concur on the alignment of business practices on global scale. The idea

posits three major perspectives towards the practice of Human resource management,

Universalistic, Contingency and Configuration.

The Universalistic perspective is about identifying the best standard of Human resource practice

through various and continuous Human resource activities while the Contingency or ‘externally

fit’ perspective suggests the need for a mix of different policies and practices to get high results

or best HR performance. The Configuration perspective stand for the interaction of business

strategies and HRM practices used to determine business performance (Beardwell and Claydon,

2010).

Another observation toward the HR practices in the international level says that, organizations

operating under same environment would be compelled towards a uniform management

practice. This ‘Isomorphic pull’ as they refer to it or ‘isomorphism’ has three forms. Management

practices under the Coercive form adopt foreign HR practices due to external pressure, such as

pressures or expectations from the state, Legal or cultural environment. The Mimetic form is

when companies copy HR models from other companies operating on the same line of business

and accept it as the standard form of practice against various uncertainties. The last model is the

Normative and it is a pull resulting from the professionalization functions or widely accepted HR

practices (Brewster et al, 2007).

In the practical field most organizations have been confronted with the deregulation of the

market, free global trade and also slow business transactions. To this they have been forced to

apply uniform and cost minimization strategies and as these international companies apply the

prescribed strategies it indirectly put pressure on the host country management system to adopt

/copy same management practice (Bratton and Gold, 2003).

EXPATRIATE S

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

are referred as Inpatriates (Dowling & Welch, 2005). As the global business activity of

International companies increased, it demanded high controlling system and follow up of the

subsidiaries business performance. To this effect, MNC have chosen the use of Expatriates,

Parent company nationals, as a controlling mechanism by assigning them in key management

positions in the subsidiary branches of the parent company (Bartlett & Ghoshal, 1989).

The efficiency of the deployed expatriate may also depend on the adaptability the expatriate on

his/her foreign assignment. A study conducted by Mark Mendenhall and Gary Oddor in 1985

suggests that expatriate success and adjustment depend on several dimensions. The first is self-

oriented dimension, which deals with the expat personal competence and adaptability to the

foreign environment. The second dimension is the others-oriented dimension, which consist of

relationship development and willingness to communicate in reference to the reluctance to

assimilate and learn the language of the foreign land. The Third dimension is the perceptual

dimension, which is concerned with the ability of expatriates to comprehend the behaviour of

foreign nationals and the fourth dimension is cultural toughness and this is to gauge how quickly

an expatriate adapts to a harsh environment (Brewster & Harris1999). Apart from parent

country nationals, Nationals from host country and third country are also considered as

expatriates. But this paper will focus only on expatriates from parent country nationals to

discuss the main reasons as to why an MNC send an employee on a foreign assignment.

Expatriates are assigned in a foreign country as,

An agent of direct control- The assigned expatriate is used to control the activities of the subsidiary and ensure its compliance through supervision (Dowling & Welch, 2005, Bartlett & Ghoshal , 1989)

An agent of socialization- The expatriate in question understands the companies values and beliefs and acts as a medium to transfer these qualities of the parent company to the subsidiaries (Dowling & Welch, 2005)

As network builder- An expatriate having a knowledge pertinent to his/her job qualification will in due course bond with people in different key positions and together build a network of interdependence (Dowling & Welch, 2005)

As boundary spanner- This refers to activities performed by the expatriate, such as gathering information that bridge internal and external organizational context. It would be the expatriates’ duty to promote the company profile as well as gather information that may be of use to the betterment of the company (Dowling & Welch, 2005)

As language nodes- Expatriates with foreign language background would eventually become an asset especially when they repatriate to their home country (Dowling & Welch, 2005).

The advantages of using expatriates are mainly to maintain organizational control, international

work experience and follow up the fulfilment of the company’s’ objective by the subsidiary.

Whereas the disadvantage points are the problem with the adaptability of expatriates to the

foreign environment and the high cost incurred by the parent company to the selection and

training of expatriates (Dowling & Welch, 2005). The process of selecting the right person to the

right position is crucial to the success of the oversees mission and it is to noted that an

expatriates success in one environment does not imply that the same expatriate will fill gaps in

all circumstances (Brewster & Harris, 1999).

To this end, In order to select an expatriate for an international assignment, Dowling & Welch

(2005) have set six basic factors which may assist managers in the process. As individual factors

they have set Technical ability, cross cultural suitability and family requirements are listed

essential while in as situational factors country or cultural requirements, language and MNE

requirements need to be analysed and considered in the selection process. In another

perspective Schneider and Barsoux (1997) list nine point they believe are important for the

selection process. They are interpersonal skill, linguistic ability, ability to tolerance and cope up

with uncertainty, motivation to work and live abroad, flexibility, patience and respect, cultural

empathy, strong sense of self and sense of humour. (Dowling & Welch, 2005)

In general the extent of the selection criteria is wide and companies need to identify and

consider the most important and pertinent points to the position to be filled.

CONCLUSION

There are various factors that differentiate International Human resource management from

Domestic human resource management. 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 similarities and differences

between International and Domestic 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.