hrm in globalhrm in global perspective (as per the revised syllabus 2016-17 of mumbai university for...

HRM in GlobalPerspective

(As per the Revised Syllabus 2016-17 of Mumbai University forT.Y.BMS, Semester – VI)

Dr. Rajeesh Viswanathan MBA, Ph.D.

Assistant Professor,Deptt. of International Business,Pondicherry Central University,

Puducherry.

Dr. Veena Prasad MBA., M.Phil., Ph.D.

Co-ordinator - Banking and Insurance Department,SIWS College Wadala, Mumbai.

Booma Halpeth MBA.

Assistant Professor,Department of Management Studies and EconomicsThe SIA College of Higher Education, Dombivli (E)

Dr. Satinder Kaur Gujral MBA., Ph.D.

I/c Principal,Reena Mehta College of Commerce and Management Studies,

Bhayander (W).

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PrefaceThis book Human Resource Management in Global Perspective is written keeping in mind

the current global HR scenario. This edition has been prepared making current, relevant researchcome alive for students. Author has maintained its hallmark features – clear writing, cutting edgecontent and compelling pedagogy. The book has been divided into 16 chapters with case studiesand exhibits from different global scenario. The book has been written for management studentsand practicing managers.

Though there exists many books on human resource management, this book has its uniqueapproach and focus. All the concepts have been discussed in detail with strategies and its impact.The book also covers case studies and exhibits to enable the reader think beyond and give thereader a feel of real-life situation.

Chapter 1, covers overview of strategic human resource management. It gives the reader abird’s eye view of International HRM and the need to study it.

Chapter 2, focuses on Organizational Dynamics – country and regional cultures,international compensations and performance appraisal in MNC.

Chapter 3, discusses on HRM global functions. Covers about HR polices and employeerelations, value of Global HR, managing culture and diversity.

Chapter 4, covers the recruitment and selection strategies from global perspective.Chapter 5, employee compensation plays such a key role because it is at the heart of the

employment relationship, being of critical importance to both employees and employers. Foremployers, compensation decisions influence their cost of doing business and thus, their abilityto sell at a competitive price in the product market. In addition, compensation decisions influencethe employer’s ability to compete for employees in the labour market (attract and retain), as wellas their attitudes and behaviours while with the employer. This chapter discusses about thecompensation strategies. Success of an organization is based in the maintaining hygiene factors,i.e., providing descent compensation. Only then managers can motivate the employees. In thischapter, international compensation strategies has been discussed.

Chapter 6, globalization of businesses has also contributed to the increased importance fortraining and development. Organizations have realized that training is essential to retain talentedprofessionals. This chapter covers various training and development methods in the globalizationphase.

Chapter 7, discusses about the performance management system and different performanceappraisal methods used in appraisal process. Though, organizations fix targets for its employees,it is possible to achieve provided if there exist an ideal performance management system.

Chapter 8, discusses about the importance of industrial relations and strategies to maintain itfrom global perspective.

Chapter 9, gives an overview of PCN, TCN and HCN, their selection recruitment andretention strategies.

Chapter 10, discusses the expatriate selection and issues. It also covers the expatriatestraining.

Chapter 11, discusses the repatriation issues overcoming the reverse cultural shock.Chapter 12, discusses the process of repatriation and the challenges being faced. It discusses

the ways to overcome the issues.Chapter 13, covers the emerging trends in International HRM and risks of off-shore

outsourcing.Chapter 14, discusses the ethical practices in business and resolving ethical dilemmas.Chapter 15, covers the strategies to manage international projects and teams. The challenges

being faced by the teams.Chapter 16, discusses the IHRM and virtual organizations, the characteristics, advantages

and disadvantages of virtual organizations.

Authors

AcknowledgementIn preparing this text, I have been fortunate enough to be assisted by many

dedicated and talented team. I wish to express my appreciation to all the threemain contributors who along with me helped in ths process. Firstly Dr. MohdMoiz, Dept. of International Business, Pondicherry University for contributinghis expertise and knowledge in Unit 2, Ms. G. Divya Lakshmi, Dept. ofInternational Business, Pondicherry University for contributing her expertise andknowledge in Unit 3, and Ms Jintu George, Dept. of International Business,Pondicherry University for contributing her expertise and knowledge in Unit 4.

Dr. Rajeesh Viswanathan

SyllabusHRM in Global Perspective

Course Code: UBMSFSVL.12Sr. No. Modules No. of Lectures

1 International HRM – An Overview 152 Global HRM Functions 153 Managing Expatriation and Repatriation 154 International HRM Trends and Challenges 15

Total 60

Objectives1. To introduce the students to the study and practice of IHRM2. To understand the concepts, theoretical framework and issues of HRM in global perspective3. To get insights of the concepts of expatriates and repatriates4. To find out the impact of cross culture on human resource management5. To provide information about global workforce management6. To study International HRM trends and challenges

Sr. No. Modules/ Units1 International HRM – An Overview

(a) International HRM – An Overview:International HRM – Meaning and Features, Objectives, Evolution of IHRM,Reasons for Emergency of IHRM, Significance of IHRM in InternationalBusinessScope/FunctionsDifference between International HRM and Domestic HRMApproaches to IHRM – Ethnocentric, Polycentric, Geocentric and RegiocentricLimitations to IHRMQualities of Global ManagersOrganizational Dynamics and IHRMComponents of IHRM – Cross-cultural Management and Comparative HRMCross-cultural Management – Meaning, Features, Convergence of Cultures, Roleof IHRM in Cross-cultural Management, Problems of Cross-cultural Issues inOrganizations, Importance of Cultural Sensitivity to International ManagersComparative HRM – Meaning, Importance, Difference between IHRM andComparative HRMManaging Diversity in WorkforceDealing with Cultural Shock

2 Global HRM Functions(a) Global HRM Functions:

International Recruitment and Selection – Meaning – Sources of InternationalLabour Market, Global Staffing, Selection Criteria, Managing Global DiverseWorkforceInternational Compensation – Meaning, Objective, Components of InternationalCompensation Programme, Approaches to international CompensationHRM Perspectives in Training and Development – Meaning, Advantages,Cross-cultural Training, Issues in Cross-cultural TrainingInternational Performance Management – Meaning, Factors InfluencingPerformance, Criterion Used for Performance Appraisal of InternationalEmployees, Problems Faced in International Performance ManagementMotivation and Reward System – Meaning, Benchmarking Global PracticesInternational Industrial Relations – Meaning, Key Issues in InternationalIndustrial Relations, Trade Union and International IR

3 Managing Expatriation and Repatriation(a) Managing Expatriation and Repatriation

Concepts of PCNs (Parent-Country Nationals), TCNs (Third-Country Nationals)and HCNs (Host-Country Nationals)Expatriation – Meaning, Reasons for Expatriation, Factors in Selection ofExpatriates, Advantages of Using Expatriates, Limitations of Using Expatriates, Roleof Family, The Role of Non-expatriates, Reasons for Expatriate Failure, Women andExpatriation, Requirements/Characteristics of Effective Expatriate ManagersRepatriation – Meaning, Repatriation Process, Factors Affecting RepatriationProcess, Role of Repatriate, Challenges Faced by Repatriates

4 International HRM Trends and Challenges(a) International HRM Trends and Challenges:

Emerging Trends in IHRMOffshoring – Meaning, Importance, Offshoring and HRM in IndiaInternational Business Ethics and IHRM – Meaning of Business Ethics, GlobalValues, International Corporate Code of Conduct, Criminalization of Bribery,Operationalizing Corporate Ethics of HR in Overall Corporate Ethics ProgrammeManaging International Projects and Teams – Meaning, How Projects are Managedacross the World and Challenges in Managing International Projects across the WorldHR in MNCs – Industrial Relations in MNCsRole of Technology on IHRMIHRM and Virtual Organization – Meaning and Features of Virtual Organization,Difference between Virtual Organization and Traditional Organization, ManagingHR in Virtual OrganizationGrowth in Strategic Alliances and Cross-border Mergers and Acquisitions Impacton IHRMKnowledge Management and IHRM

Paper PatternDuration: 2.5 hours 75 Marks

N.B.: 5 questions of 15 marks each.All questions are compulsory.

Q.1. Attempt any two:(a) 7.5 Marks(b) 7.5 Marks(c) 7.5 Marks




Q.5. Case Study 15 Marks

ContentsUnit I: International HRM – An Overview

1. Introduction to International HRM 3 – 16

2. Organizational Dynamics 17 – 38

Unit II: Global HRM Functions

3. Global HRM Functions 41 – 48

4. International Recruitment and Selection 49 – 55

5. International Compensation 56 – 61

6. HRM Perspective in Training and Development 62 – 69

7. International Performance Management 70 – 78

8. International Industrial Relations 79 – 83

Unit III: Managing Expatriation and Repatriation

9. Overview of PCNs, TCNs and HCNs Concepts 87 – 101

10. Expatriates – Issues and Family 102 – 112

11. Repatriation Causes 113 – 115

12. Repatriation Process and Challenges 116 – 126

Unit IV: International HRM Trends and Challenges

13. Emerging Trends in International HRM 129 – 139

14. Ethical Practices in Business 140 – 162

15. Managing International Projects and Teams 163 – 174

16. IHRM and Virtual Organizations 175 – 187

Unit I

International HRM – An Overview

2 HRM in Global Perspective

3Introduction to International HRM

Chapter

1

Learning Objectives: To study about the IHRM meaning , significance and objectives. To Learn about the various approaches and Importance of IHRM.

IntroductionGeneral Electric (GE) is one of the few companies in the world that has set high standards in its

human resources in all its domestic and international operations. When GE acquired the Hungarianlighting company, Tungsram in 1994, it initiated transfer and training programmes on a large-scale sothat the Hungarian employees and their US counterparts could understand each other better. Thecompany gave extra imputes to employee education and training and started quality managementprogrammes to improve the quality of the output. As a result, GE was able to increase its market sharefrom 4% to 15% in a period of five years, although it reduced its workforce by half in the same period.

Introduction to International Human Resource ManagementP.V.Morgan defines International Human Resource Management (IHRM) as, “the interplay

among three dimensions — human resource activities, types of employees and countries of operation.”A broad view of domestic and international HRM reveals that they are similar in all aspects. Thefunctions of a domestic HR manager are similar to that of a HR manager of a multinationalcorporation, except that the latter has to manage employees from different nationalities and ethnicbackgrounds. This difference in managing people of different nationalities has led to the developmentof various IHRM approaches. We shall analyse Morgan’s definition of IHRM and its elementsindividually.

Human Resource ActivitiesThe human resource activities can be broadly divided into: Acquiring human resources through recruitment and selection. Maintaining human resources through planning, staffing, compensation and labour relations. Developing human resources through performance management and training and

development.

Introduction toInternational HRM


Types of EmployeesThere are three types of employees: Host country nationals Parent country nationals Third country nationals Parent country nationals are employees who are from the parent country of the company.

For example, if a US citizen works for IBM in India then he is a parent country national.Third country nationals are employees who neither belong to the parent country of the company

nor the host country. For example, an Indian working for IBM in UK is a third country national.

Countries of OperationsThe country in which the company operates has its own rules, regulations, laws, culture,

traditions, etc. All these factors need to be considered before starting operations in another country.The countries can be categorized into:

Host country — The country in which an MNC starts its operations. e.g. An AmericanMNC starting its operations in Japan.

Home country — Its the parent country or usually the country in which the headquarters ofthe MNC is located.

Other country — Countries other than the host and home countries. Having discussed thedefinition, we shall now discuss the various approaches to managing human resources in aninternational environment.

The Development of International Human ResourceManagement

HR managers, no matter the type of organization for which they work, can and do confront withthe aspects of IHRM. The extent of this involvement will vary according to a number of factors, suchas the degree of development of the global strategy of the enterprise, and will invariably increase withtime. But as the general internationalization of business increases in extent and intensity, HR managersare being called upon to contribute increasing expertise to that internationalization. For example, someof the IHRM-related questions that need to be answered within the MNE as it establishes itsinternational strategy include:

Does the firm have the necessary globally experienced executives and employees tosuccessfully implement a global strategy? What needs to be done to train or recruit suchstaff?

Which countries make the most sense for locating international operations, at least oneaspect of which is determining where will the firm be most likely able to recruit and hire thekinds of employees it will need at a competitive wage?

How many employees will need to be relocated to international locations to start up newoperations and how many will be needed to run them (and does the firm have those people


or know-how to find or train them—or will the necessary people be sourced locally in thehost country)?

What will be required to find and recruit the necessary talent to make the new internationaloperations successful?

Will the firm want its IHRM policies and practices to be uniform across all of its locations(standardization and global integration) or will they be tailored to each location (adaptationor localization)?

One aspect of internationalizing HRM that makes the task difficult and complex comes from thefollowing: whether local HR managers are from headquarters, from the host country, or from a thirdcountry, they end up being sandwiched between their own cultures and legal traditions—andexperiences—and the cultures and practices of the firm, whether at headquarters or at the local affiliate.HR managers at the local, regional, and headquarters levels must learn to integrate and coordinatepolicies and practices taking place in diverse environments and with people of diverse backgrounds.Plus they are frequently also looked to for expertise in helping other managers be successful in theircross-border endeavors, as well.

Since most organizations, today, experience one or more aspects of international HRM, thesuccess or failure of those enterprises is often a function of how they handle their IHRM issues. As aconsequence, a new set of competencies has developed within the HR function. The section belowdiscusses some of the issues surrounding these new competencies.

International HRM differs from purely domestic HRM in a number of ways. Some of thesedifferences include IHRM being responsible for:

More HR functions and activities, for example, the management of international assigneeswhich includes such things as foreign taxes, work visas, and assistance with internationalrelocations.

A broader expertise and perspective, including knowledge about foreign countries, theiremployment laws and practices, and cultural differences.

More involvement in people’s lives, as the firm relocates employees and their families fromcountry to country.

Dealing with and managing a much wider mix of employees, adding considerablecomplexity to the IHRM management job—with each of the various types 22 StrategicContext Strategic Context of international employees requiring different training, staffing,compensation, and benefits programs.

More external factors and influences, such as dealing with issues stemming from multiplegovernments, country laws, cultures, currencies, and languages.

As a result, a greater level of risk, with greater exposure to problems and difficulties and,thus, exposure to much greater potential liabilities for making mistakes in HRM decisions(for example, political risk and uncertainties, legal compliance issues, and early return ofemployees from foreign assignments).

In addition to these factors, the geographic dispersion, multiculturalism, different legal andsocial systems, and the cross-border movement of capital, goods, services, and people that are facedby the international firm add a need for competency and sensitivity that is not found in the domesticfirm. The personal and professional attitudes and perspectives of the IHR manager must be greatly


expanded to handle the multiple countries and cultures confronted in the global arena—both tomanage their IHRM responsibilities and to contribute to successful international business strategies bytheir firms—beyond those which their domestic HRM counterparts must develop. Typical domesticHR managers do not have the global contacts or networks that become necessary to learn about and tohandle the new global responsibilities. They don’t typically have any experience with the business andsocial protocols needed to interact successfully with foreign colleagues or with the forms oforganizational structure used to pursue international strategies (such as international joint ventures orcross-border acquisitions).

Features of IHRM1. Knowledge sharing: IHRM encourages knowledge sharing of best practices across

functions through “marketplaces” and “networks.”2. Control from the bottom up: IHRM mostly decentralizes in order to maintain a close

relationship with local markets and to respond quickly to changes in environment.3. Cultivate increasing returns: IHRM rewards individuals whose best practices received the

most attention at the knowledge “marketplaces.”4. Grow by chunking: IHRM encourages local innovation by empowering the individual

business units to make key decisions through their decentralized organization structure.They built learning capacity through their knowledge “marketplaces” and “sharingnetworks.”

5. Maximize the fringes: IHRM mostly rewards risk-taking and experimenting byacknowledging individuals whose best practices received the most attention at theirknowledge “marketplaces.”

Evolution of IHRMFirst, it is necessary to briefly examine the evolution of the field in order to make a distinction

between HRM, SHRM and IHRM. A focus on the human side of management first began with EltonMayo as a reaction against Frederick Taylor’s Scientific Management. Taylor was an Americanengineer who emphasized detailed observation and measurement of work through time-and-motionstudies to increase productivity. A major principle of his philosophy was to place responsibility for theorganization of work on the manager (Morgan, 1998). Taylor believed that planning and doing weretwo separate functions that should be handled by two different classes of people. The ScientificManagement craze swept the nation during the Industrial Revolution and the early twentieth century,and its dehumanization of workers ultimately gave rise to the human relations movement led by EltonMayo. The Hawthorne Studies began in the 1920s under the leadership of Elton Mayo as aninvestigation of the relations between work conditions and worker fatigue and boredom (Morgan,1998). The studies are now associated with the identification of social needs in the workplace. TheHawthorne Studies demonstrated that work activities are influenced as much by the nature of humanbeings as by formal design (Morgan, 1998). As a result, the human relations movement, which viewedthe worker as the most important element in business, began in 1945 and continued through the 1960s(Ferris, Rosen & Barnum, 1995). Personnel Management (PM) emerged after World War II andcontinued until the 1970s. Since the 1970s, the PM side of the HRM function has been transformedfrom a purely administrative and reactive function to one that is critical and proactive within an


organization as businesses began to view employees as assets versus expenses (Ferris, Rosen &Barnum, 1995). HRM is defined as “the organizational science and practice that deals with theemployment relationships, encompassing all decisions, actions, and issues concerning thatrelationship” (Ferris, Rosen & Barnum, 1995). The HRM field consists of various practices andsubdisciplines to manage the people within an organization, such as planning, selection, training anddeveloping, appraisal, compensating, and labour relations. These practices translate into the differentfunctional areas within HR. The 1970s was essentially the birth of the strategic focus era. However, itwasn’t until Devanna, Fombrun and Tichy’s 1984 book, Strategic Human Resource Management, thatthe HRM subfield of Strategic HRM (SHRM) was created (Wright, Dunford & Snell, 2001). TheSHRM framework explored the link between business strategy and HR; it presented the basic elementsof mission and strategy, formal structure and HRM as interrelated systems that are embedded in aturbulent environment (Devanna, Fombrun & Tichy, 1984). Consequently, the different HR functionalareas became integrated horizontally, as well as aligned vertically with the firm’s overall strategy(Ferris, Rosen & Barnum, 1995). Many organizations used this framework and formulated their HRpractices in accordance with the firm’s strategy. For example, if a firm’s strategy was oriented arounda single, vertically-integrated product, its selection criteria would be standardized and focused onrecruiting for specific functional areas (Devanna, Fombrun & Tichy, 1984). Thus, companies began tosee human resources as a source of competitive advantage and HR as a strategic business partner.More recently, there has also been an emphasis on another HRM subfield called International HRM(IHRM) (Schuler, Budhwar & Florkowski, 2002). IHRM has been defined as “the worldwidemanagement of human resources” (Schuler, Budhwar & Florkowski, 2002). Its purpose is to enableMNEs to become globally successful by being: (1) competitive throughout the world; (2) efficient;(3) locally responsive; (4) flexible and adaptable within the shortest of time periods; and (5) capable oftransferring knowledge and learning across their globally dispersed units (Schuler, Budhwar &Florkowski, 2002). Many MNEs utilize the six functional areas of HRM in a strategic manner, butIHRM practices are also administered across a wide variety of nations, each with its own social,cultural, legal, economic, political and historical characteristics (Schuler, Budhwar & Florkowski,2002).

Objectives: IHRMThe objectives of IHRM involve the management of the diverse human capital employed. To

simply put the HR Manager has to ensure that despite the difference in the countries, the peopleemployed in the company are competent and supremely talented in taking the company forward.

The petty regional disparity should not crop amongst the employees hampering the growth andsuccess rate of the company. Cultural differences and risks need to be avoided at all cost and the riskof international human resource has to be reduced to the bare minimum.

The IHRM is required to follow extensive rules and regulations as well as stringent internationalpolicies related to taxation at the international location of work, employment protocols, languagerequirements and special work permits.

Reasons for the International Human Resource ManagementSome MNEs, such as Royal Dutch Shell, Unilever, and Ford Motor Company, have long

histories of conducting international business, going back 100 years or more. By necessity of having tomanage operations in many countries, these firms developed—at least at the headquarters level—


considerable international HRM expertise. Even so, the specific management function called“international human resource management” is relatively new as a professional and academic area ofpractice and interest. Of the human resource professional associations around the world, the twolargest are the Chartered Institute for Personnel and Development (CIPD) in the UK and the Societyfor Human Resource Management (SHRM) in the US. Many countries have their own professionalHR associations and most, including the US and the UK, belong to the much larger umbrellaorganization called the World Federation of Personnel Management Associations (WFPMA) now withover 60 national HRM professional societies as members. It has only been in the last 30 years or sothat IHRM service providers (such as cross-cultural training firms, international relocation firms, andinternational HRM consulting firms) have developed a special focus on IHRM. SHRM and CIPD anda number of universities are now providing conferences and training seminars and courses on topicsrelated to IHRM, as do many IHRM service providers, consultant groups, and other IHRM-relatedorganizations.

Significance of IHRM in International BusinessScullion outlined some major significance of IHRM in global business environment. This

significance can categorized as,

CHALLENGE: Rapid growth of internalization and global competition has increased the nos. and

significances of MNCs – resulting in the increased mobility of human resources. Increasing no. of strategic alliances and cross border mergers and acquisitions has increased

the strategic implementation of IHRM as Global business.

COMMITMENT: Worldwide recognition of management of human resources in international business and

cross cultural management. Significance of Challenge Commitment Cost EffectivenessCompetence Congruence Other countries Nationals .

Business Networks and Horizontal communication and HR plays a vital role.

COST EFFECIVENESS: The performance of expatriates. (poor performance of expatriate may affect the market share

and damage to foreign relations) Growing Importance of Expatriates in International Business.

COMPETENCE: Global Strategy Implementation. Success or failure of international business based on effectiveness of management of HR.

CONGRUENCE: Learning, knowledge acquisitions have been identified as important potential sources of

company advantages for MNCs. This has also enhanced the role of IHRM to meet the keystrategic challenge of objectives.


Knowledge management is an important source of compantancy advantage for MNCs,where IHRM is the key partner and plays a central role.

Difference Between Domestic and IHRMOne obvious difference between domestic and international HRM is that staff are moved across

the national boundaries into various roles within the international firm’s foreign operations – theseemployees have traditionally been called ‘expatriate’. An expatriate is an employee who is workingtemporarily residing in a foreign country.

However, as pointed out by Dowling, domestic HRM is involved with employees within onlyone national boundary; on the other hand IHRM deals with 3 nationals or country categories(expatriate): Parent Country, Host Country and Third country. So, broadly there are two major factorstherefore which differentiate domestic HRM from IHRM.

1. The complexities of operating in different countries / cultures2. Employing different nationals and different categories of workers across boarder.It has been also argued by Dowling that the complexities of IHRM can be attributed to six

factors that differentiate international from domestic HRM. These are:1. A wide range of HR activities2. The need for a broader perspectives3. More Involvement in employee’s personal life.4. Responsiveness to changes in staffing requirements as international strategy changes.5. Higher risk exposure6. More external influences.

However, the international dimension brings with it a host of issues, which the domestic HRfunctions would not normally get involved in. The practice of HRM in the international context isdifferent from its domestic counterpart in a number of ways. These include:

Being responsible for a greater number of functions and activities such as selection, trainingand management of international assignees.

Having to expand one’s area of expertise to include a much broader knowledge of foreigncountry employment laws and global organization designs.

Having to get much more closely involved with employees lives as the firm movesemployees to foreign assignments. For example, collecting information and furnishing tovisa authorities about aids or material status of employees.

Being involved with greatly expanded and constantly changing mix of employees (from thehost countries and foreign locals), adding considerable diversity and complexity to the HRtasks.

Having to cope with more external influences; for example, having to consider the impact offoreign cultures and laws.

Having to face greater exposure to problems and liabilities (for example, making mistakes inexpatriate assignments can cost as much as US$4 million per assignee). The accumulateddirect and indirect costs can be huge.


Additional responsibilities like translation of language, both at headquarters and at thesubsidiary level, organizing schooling and housing for expatriates and providingadministrative services.

Management of differential compensation due to variety of allowances and adjustments. More emphasis on activities like international relocation and orientation, both pre departure

and post departure cultural training. Knowledge of international taxation, rate of inflationand cost of living, including currency fluctuation.

Diversity management, like managing people from different cultural and politicalbackgrounds and gender differences.

More contacts with Government officials for obtaining visas, work permits, tax certificates,fixing of meetings and so on.

More coordination and travel to assess performance of expatriates and solve problems. More risk management as threats from terrorists, Kidnappers and protecting intellectual

property rights of firms. More risk management as threats from terrorists, kidnappers and protecting intellectual

property rights of firms. More public relations work to enhance the multinationals image and deal with human rights

and other NGOs and interest group operating in different countries.

Approaches to IHRMFor studying HRM at an international level, different organisations adopt different approaches.

Some of these approaches are: Ethnocentric approach: organisations favours the home country rather than the host

country in most aspects. Polycentric approach: organisations favours the host country rather than the home country. Regiocentric approach: organisations favours development of a particular region rather

than home or host countries. Geocentric approach: organisations does not favour any region or country but views the

whole world as an unified market.

Factors Affecting the Approach to IHRMMNCs adopt different approaches to IHRM depending upon the host country’s work culture,

political policies, legal regulations, etc. The factors that affect the approaches to IHRM can be dividedmainly into four types:

Political policies and, legal regulations of the host country Technology and the nature of the product Organisational life-cycle Level of education and technological advancement of the host country


Political Policies and Legal Regulations of the Host CountryMNCs have to follow the rules and regulations of the host country when they start a subsidiary. If

an MNC adopts an ethnocentric approach to manage its human resources, then it may try to recruitmanpower from the parent country but if the host country has restrictions on hiring people from itsown country, then they have to recruit host country nationals or third country nationals. Host countries,usually, impose such restrictions so that the people of their country get employment opportunities.Also, the training and development provided by the MNC improves the quality of workforce in thehost country. These kind of legal restrictions are mostly seen in developing countries because theGovernments view MNCs as vehicles for the country’s development..

Technology and Nature of the ProductThe approach adopted by MNC differs depending upon the technological inputs needed by the

product during various stages of its development. In case the product is highly technology-dependentand requires great degree of quality control, then it adopts an ethnocentric approach. This approach isadvisable because the MNC can use the technical expertise which it has developed in its parentcountry to maintain the quality and standards in the subsidiary. On the other hand, products which areto be customised keeping in mind the taste of the local people, needs a polycentric approach.

Organisational Life-cycleThe organisational life-cycle consists of four stages. They are:(1) Initiation stage(2) Functional growth stage(3) Controlled growth stage(4) Strategic growth stageAn organisation adopts different approaches depending upon the stage:Initiation Stage: In the initiation stage, organisations again opt for an ethnocentric approach.

There is a high degree of control over the subsidiary and all its operations are closely monitored. Thesubsidiary limits its operations as the focus is to establish itself in the host country’s market.

Functional Growth Stage: A polycentric approach is adopted in the functional growth stage.The organizational operations become extensive. The organisations open a number of subsidiaries andthe local headquarters is incharge of the operations while the home country headquarters assumes amore strategic role.

Controlled Growth Stage: In the controlled growth stage, organisations adopt a regiocentricapproach. The focus is to cut costs and enhance productivity. The idea is to integrate businesses at aregional and domestic level and to attain economies of scale. The regiocentric approach is a steptowards adopting a geocentric approach.

Strategic Growth Stage: In this stage an organisation becomes a global player, as it hasestablished subsidiaries in a number of countries. It faces stiff competition from the domestic andinternational firms. To consolidate its position, it establishes joint ventures and strategic alliances. Ageocentric approach is adopted so that the domestic and international operations are integrated interms of product development, marketing and distribution.


Level of Education and Technological Advancement of Host CountryWhen an organisation plans to open a subsidiary in a developing country, it has to look at the

availability of skilled and unskilled labour in that country and also at the country’s educational systemand the technological advancement. It is generally believed that the quality of education in a country isreflected in the quality of its workforce. A good technical and management education system helps inbetter planning of human resources. This in turn helps the management to adopt the right approach toIHRM. For example, an MNC opening a subsidiary in a backward country needs to invest more intraining and development as the host country nationals may not be highly skilled.

Challenges and Emerging Issues in IHRMSome of the challenges and emerging issues in IHRM are: Ethics and corporate social responsibilities Bribery Code of conduct for MNCs

Ethics and Corporate Social ResponsibilitiesEthics and corporate social responsibilities in the international business environment are always

debatable. MNCs have been accused of being indifferent to the problems of host countries as they aremore concerned about the profitability of their companies. MNCs have to balance the ethics and moralof their country and host country.

Ethical relativist Ethical absolutist Ethical universalist

Ethical RelativistAn ethical relativist believes that there is no right or wrong. What is right in a particular situation

in one place may not be so in another. Relativism offers flexibility but may prove to be disastrous inthe long-run for an MNC.

Ethical AbsolutistAn MNC which believes in this approach is strongly influenced by the practices and policies of

its home country. They do not give much importance to the culture and values of the host country.Ethical absolutists have been criticised for their arrogance and for showing little respect to thetraditions and culture of the host countries.

Ethical UniversalistAn ethical universalist believes that there are fundamental rules which help us differentiate

between right and wrong. These rules need to be adhered to in any country and in any situation. Anethical universalist believes that cultural variations between countries should not lead to anywrongdoing on the part of the MNCs. There is a distinction between practices which are culturallydifferent and ones which are morally wrong. MNCs should understand this difference and worktowards achieving high ethical standards.


BriberyAccording to a survey conducted by J.Macken, developed countries give around $85 billion to

underdeveloped countries in the form of bribes. MNCs from developed countries have been accused ofbribing Government officials. Hence, countries should frame laws to prevent corruption. For example,in the US, there is a law called Foreign Corrupt Practices Act (FCPA), which prohibits US- basedfirms from bribing officials in other countries.

Code of Conduct for International BusinessThe first step in framing a code of conduct for international business players came in the form of

the ‘Caux Round Table Conference on ‘Principles for Business Conduct’ held in 1994. It was aconference on international business ethics, held at Caux in Switzerland and was attended by thebusiness leaders from all countries. The focus was to formulate a set of rules and ethical codes whichwould be used for benchmarking global business practices. Major work on this issue was done atMinnesota centre for corporate responsibility in the US. The main aim of Caux conference as given inthe charter is, “ to further the twin value of living and working together and human dignity bypromoting free trade, environmental and cultural integrity and prevention of bribery and corruption.”

Following are the general principles enacted at the Caux Roundtable conference for improvingthe economic and social conditions of human beings.

Principle 1: The Responsibilities of Businesses: Beyond Shareholders toward Stakeholders: Thevalue of a business to society is the wealth and employment it creates and the marketable products andservices it provides to the consumers at a reasonable price commensurate with quality. To create suchvalues, a business must maintain its own economic health and viability, but survival is not a sufficientgoal. Businesses have a role to play in improving the lives of their customers, employees, andshareholders by sharing with them the wealth they have created. Suppliers and competitors as wellshould expect businesses to honour their obligations in a spirit of honesty and fairness. As responsiblecitizens of the local, national, regional and global communities in which they operate, businesses sharea part in shaping the future of those communities.

Principle 2: The Economic and Social Impact of Business: Towards Innovation, Justice andWorld Community: Businesses established in foreign countries to develop, produce or sell should alsocontribute to the social advancement of those countries by creating productive employment andhelping to raise the purchasing power of their citizens. Businesses also should contribute to humanrights, education, welfare, and vitalisation of the countries in which they operate. Businesses shouldcontribute to the economic and social development, not only in the countries in which they operate,but also in the world community at large, through effective and prudent use of resources, free and faircompetition, and emphasis upon innovation in technology, production methods, marketing and‘communications.

Principle 3: Business Behaviour: Beyond the Letter of Law Towards a Spirit of Trust: Whileaccepting the legitimacy of trade secrets, businesses should recognise that sincerity, candour,truthfulness, the keeping of promises, and transparency contribute not only to their own credibility andstability but also to the smoothness and efficiency of business transactions, particularly on theinternational level.

Principle 4: Respect for Rules: To avoid trade friction and to promote free trade, equalconditions for competition, and fair and equitable treatment for all participants, businesses should


respect international and domestic rules. In addition, they should recognise that some behaviour,although legal, may still have adverse consequences.

Principle 5: Support for Multilateral Trade: Businesses should support the multilateral tradesystems of the GATT/World Trade Organisation and similar international agreements. They shouldco-operate in efforts to promote the progressive and judicious liberalisation of trade and to relax thosedomestic measures that unreasonably hinder global commerce, while giving due respect to nationalpolicy objectives.

Principle 6: Respect for the Environment: A business should protect and, where possible,improve the environment, promote sustainable development, and prevent the wasteful use of naturalresources.

Principle 7: Avoidance of Illicit Operations: A business should not participate in or condonebribery, money laundering, or other corrupt practices: indeed, it should seek co-operation with othersto eliminate them. It should not trade in arms or other materials used for terrorist activities, drug trafficor other organised crime

Characteristics and Skills of a Global Manager Vision: ability to set the path others will follow Teambuilder: ability create an enviroment in which people want to follow the path

Passion: strong belief in vision which infects others on team Willingness to learn Willingness to fail Open mind Confidence Self-awareness Communication skills Ability to relate to others Ability to adapt quickly Social Intelligence Cultural Agility Organization Awareness Influential High Emotional Intelligence

In addition: Ability to instill trust in others Ability to motivate others Understanding of different cultures, and willing to redefine expectations based on this

knowledge. Understanding of global economies. Ability to see opportunities as they relate to the company


Able to motivate people of different cultural backgrounds that is aligned with thencompany's business model. An understanding of what motivates, and de-motivates, peopleof different backgrounds, is not enough. This needs to be coupled with an understanding ofwhat the company's "mission" is, and what is best suited for a particular person with aparticular background.

Cultural intelligence

What is the Real Value of HR?In a provocative feature in the Financial Times, Johnson suggests that HR, together with other

divisions such as IT, legal and marketing, is probably the very definition of a necessary evil for the21st-century business. HR is like many parts of modern business: a simple expense, and a burden onthe backs of the productive workers. They don't sell or produce; they consume. They are theamorphous support services.

Stern also questions the real value of HR professionals and suggests they are really only there forthe nasty things in life, like sacking people - legally.

It may sound harsh, but the unfortunate truth is that of all the functional departments, HR viesonly with IT for the amount of opprobrium it traditionally attracts from everyone else, and thesourness of the gibes made at its expense.

Stern maintains that in hard times harried line managers do contact colleagues in HR, too oftenthey are met with an excessive level of bureaucracy, and it is no wonder no one takes them seriously.According to the Corporate Research Forum, HR professionals will need to change if they are tosucceed. HR professionals need to be seen to be contributing valuable insights and interventions.'They need to be real business people, with a grasp of profit-and-loss realities . . . HR's efforts shouldbe directed towards creating a high-performance work environment. . . HR needs ... to be the guideand guardian of high-quality management. . . [and] think in terms of internal customer satisfaction andadded value.'

SummaryAn essential part of the process of management is that proper attention be given to the efficient

use of resources, in particular human resources. In recent years there has been increasing attention to astrategic approach to 'human resource management' (HRM) and also to the idea of 'human capital'.However, it is important to remember that it is people who are the most important asset of anyorganisation. Effective HRM requires strategic integration of people management policies andsuccessful implementation if it is to impact on organisational performance.

Success in the field of human relationships stems from good HRM policies and practices whichshould be based on underlying philosophies of managerial behaviour and employee relations. Therange and scope of HRM activities are wide, and a shared responsibility among top management, linemanagers and supervisors, and the HR manager. As an element function, HRM is part of the generalityof management and part of the responsibility of all managers and supervisors. HRM has to operate at astrategic level and in partnership with line managers.

One major area of HRM work of particular relevance to the effective management and use ofpeople is training and development. Training is a key element of improved performance and offers anumber of potential benefits for both the individual and the organisation. In order to secure the full


benefits of training there must be a planned and systematic approach and a continuous commitment totraining standards. Learning via technology, e-learning, is growing in popularity and importance.Investors in People provides a national framework for training and development of people to achievebusiness goals. Another relatively new area of HRM of particular importance is talent management,which offers a strategic approach to gaining a competitive advantage through the people resource.

Sound HRM policies help to foster good employment relations. It is necessary to take account ofthe institutions and parties involved, and their ideologies and motives. There are two major andcontrasting perspectives of work organisations, and the explanation and outcomes of conflict - theunitary and the pluralistic perspectives. These contrasting views influence the nature of employeerelationships and the management of human resources. Good managerial strategies are important foreffective employment relations that are founded on a combination of legal and behavioural dimensions.

It is important that line managers are involved, at least to some extent, with the responsibility foremployment relations. HRM practices are influenced by the culture of the society in which they takeplace. Increasingly the European Union is seeking to harmonise employment practices among memberstates. The ultimate measure of effectiveness of the HRM function is the contribution to good humanrelationship at work and improved organisational performance, but this is not always readily apparentor easy to identify

Review Questions1. Explain the approaches of IHRM2. Explain the role of global managers3. What are the current challenges being faced by IHRM?

hrm in globalhrm in global perspective (as per the revised syllabus 2016-17 of mumbai university for...

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