International human resource
management
Introduction
Increasing competition in global business has created new challenges for multinational
corporations (MCs) on how human resources are best managed. Globalisation has also
meant that international business has to be managed in a diverse multicultural environment
comprised of different infrastructural systems, levels of economic development,
religions, values, ideologies, education, and social structures (Hollenbeck & Wright
2007). However, even domestic organisations cannot operate without the influence of
globalisation, which calls for an adjustment of ‘the way things are done at home’ in order
to remain competitive within a global context.
Therefore, international diversity and globalisation are key drivers of international
human resource management (IHRM). Schuler (2000) puts it in the right context as he
argues that the complexities of operating in different countries and employing different
national categories of workers is the key element that distinguishes domestic from international
human resource management. This chapter is devoted to addressing human
resource management issues at the international level and their influence on the way
human resource functions should be handled and their implications in international
business competitiveness.
By the end of the chapter, the learner should be able to:
• Distinguish domestic from international human resource management,
• Examine the international environmental factors that affect human resource
functions,
• Establish a link between international human resource management and MCs
competitiveness and
• Appreciate techniques for handling challenges of managing a multicultural
workforce.
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The concept and reasons for IHRM
Over the past two decades we have witnessed major organisational changes worldwide
such as mergers, acquisitions, and partnerships in order to face the international business
environment in a more competitive manner. These changes have led to the opening
up of branches abroad where both local people and foreign expatriates work together.
These changes have given rise to international human resource management, which entails
performing human resource functions by taking international diversity on board in
socio economic development, culture, religion, ideologies, values, social structure and
expectations in order to gain a competitive advantage. Michael Armstrong looks at
IHRM as ‘the process of employing, developing and rewarding people in international
or global organisations’ (Armstrong 2006: 99). In this regard, it is observed that there
are several factors that have pushed for the need to have IHRM as a distinct field within
in HRM. These are:
The increasing globalisation and growth of multinational corporations.
Today, geographical distances between one continent and country and another is no
longer a problem. We are virtually living in a global village where improvement in science
and technology has drastically reduced market information barriers. Market information
from one continent or country to another can be obtained within a minute of
clicking a button on a computer connected to the internet. This has immeasurably contributed
to increasing awareness of new markets, formation of more MNCs and at the
same time stiffer competition at a global level.
Ability to manage multicultural workforce as it influences performance.
Going international also means accepting the rules of the game in international business.
Such rules include the ability to manage a workforce with different backgrounds under
the same roof through strategies that optimise diversity in order to produce goods and
services that can compete both locally and internationally. Studies in large American
firms have shown that organisations with a multicultural workforce (Whites, Mexicans,
Afro Americans, Indians, and Japanese) were performing far better than those without.
Shortage of managers with competence to manage MNCs.
The demand for knowledge, skills and the right attitude for international jobs has been
increasing over the years. International managerial jobs require multiskilled staff. It is
difficult to get those people because knowledge and training in international business
operations in a multidisciplinary approach is still new relative to the historical traditions
of specialised training which focused on specific disciplines and professions.
It is expensive to fail in international business
It is a very expensive and risky endeavour to establish an international business because
of the initial and operational capital requirements as well as the possibility of a change
in the political or economic environment. Human resources as the manager of other resources
can cause the success or failure of a business. For example, unqualified marketing
staff can potentially cause the loss of market share and a damage of reputation to
overseas customers. This cannot be tolerated. Therefore precautions have to be taken
right from recruitment level.
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The experience of expatriate failures
Lessons from earlier expatriates who were assigned jobs abroad have also had an impact
in the development of IHRM. Frustration due to the inability to cope with the demands
of a multicultural workforce and community led to many resignations and pressure for
research and training in diversity and coping strategies.
Salient features of IHRM
Torrington (1994 in Armstrong 1997), identified seven features that characterise IHRM.
1. Cosmopolitan nature of the employees. That is, employees tend to be either members
of high level elite who work as coordinators or expatriates; they are constantly
on the move between one country to another.
2. Culture. There are major differences in their cultural backgrounds.
3. Rewards. There are differences in pay and other benefits between international and
local staff.
4. Communication. Effective communication is maintained between the metropolitan
and peripheral offices. There is a wide use of multilingual media communication.
5. Consultancy as modus of operandi. In most cases, international staff are brought in
to provide local consultancy needs.
6. Focus on competency. There are specific efforts to develop different ranges and
levels of competence for staff in order to match global demands.
7. Coordination. There are strategies to bring together and closely manage different
functions across borders.
International diversity and IHRM
As was noted in the introductory part of this chapter, countries and their people are different.
Such differences have implications on what can and cannot be done and even
how to do it in people management. For the purpose of simplicity, these diversities are
organised into three main blocks: economic, human capital, and culture (Leopold et al.
2005). These factors explain the extent to which human resource management functions
may take different forms and encounter challenges depending on the seriousness of the
impact of such factors.
Economy
The level of economic development of a particular country is determined by many factors,
including the gross domestic product (GDP), the rate of inflation, the extent of infrastructural
development (roads, electricity, telephone, railway network), the extent of
poverty in the majority of the population etc. In the 1970s and 80s, there was a strong
dichotomy between the so called developed and underdeveloped countries. The former
constituted most European countries, Russia, North America, Australia and Japan, while
the latter referred to Asian, African and Latin American countries. In the 2000s, a serious
ambiguity was observed in this dichotomy. Some economic analysts were afraid to
call China, North Korea, Thailand, Malaysia and some others ‘developing countries‘
because of vast developments levels reached by such countries in the last two decades;
whereas Africa, on the other hand, continued to be seen as being deeply rooted in the
mire of poverty in various forms. Due to low levels of development, international human
resource managers working in poor countries (mostly in Sub Saharan Africa and
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the Caribbean) face peculiar challenges, which are by and large different from those
experienced by their colleagues elsewhere. For example, high inflation would usually
affect staff purchasing power and hence the need to continuously adjust salaries. Unreliable
supply of electricity would usually cause frustrations not only in production but
also in ability to communicate or live in a comfortable home. Widespread poverty in the
community may lead to local staff spending a substantial part of their salaries and benefits
on supporting those in the neighbourhood and relatives thus reducing their consumption
basket. This may trigger undesirable consequences including theft, corruption,
and engagement in moonlighting activities at the expense of the organisation. There are
a myriad of cause and effect relationships between low level of economic development,
effectiveness in human resource functions and performance of MNCs.
Human capital
The quality of primary education, vocational training, university education, and professional
training varies across countries. It is not possible for a poor country to afford the
luxury of quality education of an international standing for a sizeable proportion of the
workforce, let alone basic literacy. Difficulties in recruiting local staff with sufficient
competence in communication, numerical, and computer skills are some of the manifestations
of low quality of education in poor countries. There are also cases where poor
countries have excelled in some disciplines attracting recruitment from world class
MNCs. India is a case in point where it has some of the most renowned specialists in
medicine and computer science. Even where the country has strong human capital, language
barriers have a strong correlation with employees’ ability to display his/her levels
of competence. Differences in the qualit