Chapter 1 The Challenges of International Human Resource Management Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

What is HRM is set of organizational activities aimed at effectively managing and directing human resources/labour towards achieving organizational goals. Typical functions performed by HRM staff would be recruitment, selection, training and development, performance appraisal, dismissal, managing promotions and so on. 1-2

What is International HRM IHRM can be defined as set of activities aimed managing organizational human resources at international level to achieve organizational objectives and achieve competitive advantage over competitors at national and international level. IHRM includes typical HRM functions such as recruitment, selection, training and development, performance appraisal and dismissal done at international level and additional activities such as global skills management, expatriate management and so on. 1-3

Types of employees Home country employees- Employees belonging to home country of the firm where the corporate head quarter is situated. Host country employees- Employees belonging to the nation in which the subsidiary is situated. Third country employees- These are the employees who are not from home country/host country but are employed at subsidiary or corporate head quarters. As an example a American MNC which has a subsidiary at India may employ a French person as the CEO to the subsidiary. The Frenchman employed is a third country employee. 1-4

Differences between domestic HRM 1. Domestic HRM is done at national level and IHRM is done at international level. 2. Domestic HRM is concerned with managing employees belonging to one nation and IHRM is concerned with managing employees belonging to many nations (Home country, host country and third country employees) 3. Domestic HRM is concerned with managing limited number of HRM activities at national level and IHRM has concerned with managing additional activities such as expatriate management. 4. Domestic HRM is less complicated due to less influence from the external environment. IHRM is very complicated as it is affected heavily by external factors such as cultural distance and institutional factors. 1-5

Strategic IHRM Strategic international human resource management (SIHRM) is the process of planning how best to develop and implement policies and practices for managing people across international boundaries by multinational companies. As defned by Schuler et al (1999: 321) it consists of: ‘Human resource management issues, functions and policies and practices that result from the strategic activities of multinational enterprises and the impact on the international concerns and goals of those enterprises’. 1-6

The aims of SIHRM are to ensure that HR strategies, policies and practices are developed and implemented that will help the enterprise to operate profitably in a number of different countries and ensure that each unit can operate effectively within its context – its culture and the legal, political and economic factors that affect it. In doing this, the organization has to bear in mind the point made by Pucik (2007: 203) that ‘The global firm must manage the contradictions of global integration, local responsiveness and worldwide coordination. 1-7

The specifc issues that affect international as distinct from domestic HRM are the impact of ; * globalization, * the influence of environmental and cultural differences, the * extent to which operations should be centralized or decentralized, and the extent to which HRM policy and practice should vary in different countries (convergence or divergence). The last two issues are of particular concern when framing international HR strategies. 1-8

1-9 Globalization Globalization is the process of international economic integration in world-wide markets. It involves the development of single international markets for goods or services accompanied by an accelerated growth in world trade. Any company that has economic interests or activities extending across a number of international boundaries is a global company. This involves a number of issues not present when the activities of the firm are confined to one country

1-10 Environmental differences Environmental differences between countries have to be taken into account in managing globally. These include ‘differences in the centrality of markets, institutions, regulation, collective bargaining and labour-force characteristics’. For example, in Western Europe collective bargaining coverage is much higher than in countries like the United States, Canada and Japan. Works councils are mandated by law in Western European countries like Germany, but not in Japan or the United States. In China, Eastern Europe and Mexico, labour costs are signifcantly lower than in Western Europe, Japan and the United States.

Cultural Differences Let’s discuss that Cultural Differences Let’s discuss that

Centralization or decentralization As Pucik (2007: 201) declared: ‘Many firms competing globally are being pointed in contradictory strategic directions. In order to survive and prosper including knowledge and management expertise. Decentralized companies meeting these problems tend to veer towards centralization until bureaucracy, lack of responsiveness and the inability to retain good people locally leads the pendulum to swing again towards centralization. Centralization or decentralization As Pucik (2007: 201) declared: ‘Many firms competing globally are being pointed in contradictory strategic directions. In order to survive and prosper including knowledge and management expertise. Decentralized companies meeting these problems tend to veer towards centralization until bureaucracy, lack of responsiveness and the inability to retain good people locally leads the pendulum to swing again towards centralization. 1-12

Centralization or decentralization They attempt to maximize the benefits from both approaches in order to achieve high integration while remaining locally responsive. This can mean following the old adage of ‘think globally and act locally’ and can get the best out of both worlds. But it is a hard strategy to implement. It requires managers with what Pucik calls a ‘global mindset’, who can behave and act in a way that recognizes the global nature of the firm and who can focus both on worldwide strategies and the need to encourage the development of local initiatives and allow a reasonable degree of local autonomy within a global framework. Centralization or decentralization They attempt to maximize the benefits from both approaches in order to achieve high integration while remaining locally responsive. This can mean following the old adage of ‘think globally and act locally’ and can get the best out of both worlds. But it is a hard strategy to implement. It requires managers with what Pucik calls a ‘global mindset’, who can behave and act in a way that recognizes the global nature of the firm and who can focus both on worldwide strategies and the need to encourage the development of local initiatives and allow a reasonable degree of local autonomy within a global framework. 1-13

Strategic management is always about making choices and this is particularly the case in international strategic management. The fundamental strategic choices are on the degree of centralization/decentralization and convergence/divergence to be adopted. ‘It is the utilization of organizational capabilities worldwide that provides multinational companies with competitive advantage’. Strategic management is always about making choices and this is particularly the case in international strategic management. The fundamental strategic choices are on the degree of centralization/decentralization and convergence/divergence to be adopted. ‘It is the utilization of organizational capabilities worldwide that provides multinational companies with competitive advantage’ PLUS

Multinational companies have to make strategic choices on how to find and develop talented managers with a global mindset and how to make the maximum use of expertise by transferring learning across units in order to ‘enhance an organization’s capability to gain and use its knowledge resources. Multinational companies have to make strategic choices on how to find and develop talented managers with a global mindset and how to make the maximum use of expertise by transferring learning across units in order to ‘enhance an organization’s capability to gain and use its knowledge resources. 1-15

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Resource Based Approach Characteristics -Internal firm based perspective -Views competitive advantage as driven by firm specific resources, Resource Based Approach Characteristics -Internal firm based perspective -Views competitive advantage as driven by firm specific resources, 1-19

Being Better or Being Different -Sustainable competitive advantage a)Try to be better than rivals (positioning approach) b)Try to be different than rivals (resource- based) Canon, Virgin, Dell Being Better or Being Different -Sustainable competitive advantage a)Try to be better than rivals (positioning approach) b)Try to be different than rivals (resource- based) Canon, Virgin, Dell 1-20

What is a resource? A competence may be defined as a deployment of resources and capabilities which enable a firm to do smthg especially well, This ‘something’ may be manufacturing engines (Honda) product innovation (apple) Resources are inputs, capabilities are the means of productively harnessing those inputs. What is a resource? A competence may be defined as a deployment of resources and capabilities which enable a firm to do smthg especially well, This ‘something’ may be manufacturing engines (Honda) product innovation (apple) Resources are inputs, capabilities are the means of productively harnessing those inputs. 1-21

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1-24 Areas that distinquish the major resources? 1.Customer Value:competence must make a real impact on how the customer perceive s the org. And its products 2.Competitor differentiation: competence must be competitively unique 3.Extendable: Core skills need to be capable of providing basis of products or services that go beyond those currently available. Areas that distinquish the major resources? 1.Customer Value:competence must make a real impact on how the customer perceive s the org. And its products 2.Competitor differentiation: competence must be competitively unique 3.Extendable: Core skills need to be capable of providing basis of products or services that go beyond those currently available.