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THE INTERNATIONALIZATION OF HUMAN RESOURCE MANAGEMENT

IN THE HOST NATION CONTEXT & STRATEGIC APPROACH OF IHRM

Dr. Pranee Chitakornkijsil

Graduate School of Business Administration

National Institute of Development Administration (NIDA), Thailand.

wayne.s@nida.ac.th

Abstract

In this study, the internationalization of human resource management is considered. It

concerns staffing, expatriate procurement, compensation, training and development, international

labor relations, as well as performance evaluations and contributions. Likewise, international

human resource management (IHRM) in the host nation context is presented. Later, controlling

IHRM practices of host nation subcontractors is addressed. This is followed by IHRM

implication of language standardization. Moreover, the cultural host country and workplace

environment are considered. Additionally, we provide a strategic approach of IHRM. Finally,

we conclude with a discussion and contribution.

Key Words: Social Internationalization, Human Resource Management.

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The Internationalization of Human Resource Management

Human Resource Management is more complex in international businesses, where

management development, staffing, compensation activities, and performance evaluation are

complicated by differences between legal systems, cultures, and economic systems within

various labor markets, such as:

• Labor laws can prohibit union organization in one nation and mandate it in another.

• Compensation types vary from nation to nation.

International human resource management (IHRM) deals with a host of issues. It deals

with developing managers to do business in different nations, and how to compensate people in

different countries. Additionally, IHRM deals with a host of problems related to expatriate

managers. An expatriate manager is a citizen of one nation who works abroad.

Staffing

Staffing policy involves the recruitment of employees for each individual job, and

considers the skills required to do particular jobs. Staffing policies are able to support corporate

culture surrounding the organization’s value systems and norms.

We will show three types of staffing policies in international businesses: the polycentric

approach, the ethnocentric approach, and the geocentric approach.

The Polycentric Policy

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A polycentric staffing policy needs host-country nationals to be selected to manage

subsidiaries, while the parent company deals with key positions at corporate headquarters. One

advantage of applying a polycentric policy is that the company is suffers less from varying

cultural aspects. Another advantage is that a polycentric policy is less expensive concerning the

costs of value creation. Host-country managers have limited opportunities to gain experience in

foreign countries and cannot progress in senior positions in their own subsidiary. Language

barriers and national loyalties can isolate corporate headquarter staff from the various foreign

subsidiaries. For example, Unilever’s shift from a multi-domestic strategic posture to a

transnational posture was very difficult.

The Ethnocentric Policy

An ethnocentric staffing policy concerns all key management positions filled by parent-

country nationals. Companies such as Procter & Gamble, Matsushita, and Philips NV originally

followed it. In various Japanese and South Korean enterprises such as Matsushita, Toyota, and

Samsung, key positions in international operations are always held by home-country nationals.

Companies apply an ethnocentric staffing policy for various reasons. Firstly,

enterprises believe that the host country lacks qualified persons to fill senior management

positions in less developed nations. Secondly, a company looks at ethnocentric staffing policy as

the best way to maintain corporate culture. Some Japanese companies like for their foreign

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operations to be headed by expatriate Japanese managers because these managers have socialized

into the firm’s culture while employed in Japan. Thirdly, in order to create value by transferring

core competencies to a foreign operation, it is believed that the best way to do this is to transfer

parent-country nationals who have knowledge of that competency to the foreign operation. An

ethnocentric staffing policy limits advancement opportunities for host-nation nationals.

Additionally, expatriate managers are paid more than home country nationals. An ethnocentric

policy can lead to the company’s failure to understand host-country cultural differences.

The Geocentric Policy

A geocentric staffing policy finds the best workforce for key jobs throughout the

organization, regardless of nationality which offers various advantages. It can set up the

company for the best use of its human resources. Besides, it can build a cadre of international

executives in a number of cultures. Applying geocentric policy can create value from the pursuit

of experience and from the multi-directional transfer of core competencies as well as location

economies. Other issues are that some countries want foreign subsidiaries to employ their

citizens. Employers will apply for immigration to establish employment for the host-country

national if that person has adequate and necessary skills.

Expatriate Procurement

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One way to reduce expatriate failure rates is by improving recruitment procedures to

screen out inappropriate candidates. Local performance and foreign performance potential are

not the same thing. An executive who performs well in a local setting may not be able to adapt to

managing in a different cultural setting. Four elements may predict success in a foreign posting:

• Perceptual ability. This is the capacity to know why people of other nations behave the

way they do; that is critical for managing host-country nationals.

• Cultural aspect. Some countries’ cultures are more unfamiliar and uncomfortable.

• Self-orientation. Expatriates with high self-confidence, self-esteem, and mental well-

being may be successful in foreign posting, and adapt their interests in sport, food, and

music; usually they are also technically competent.

• Others-orientation. The expatriate’s ability to interact effectively with host-country

nationals is key to success. Relationship development in long-lasting friendships with

host-country nationals is necessary. Expatriate’s willingness to utilize the host-country

language indicates a willingness to communicate.

Compensation

How compensation is to able to be adjusted to show national differences in compensation

practices and economic circumstances is important. How expatriate managers are paid is

imperative to their success. Various differences occur in the compensation of executives at the

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same level in various countries. In ethnocentric companies, this problem of how much home-

country expatriates should be paid can be simplified. But in polycentric enterprises, the lack of

managers’ mobility among national operations means that pay can and ought to be kept country-

specific. A geocentric staffing approach for a cadre of global managers may include many

different nationalities.

Expatriate Pay Approach

The same purchasing power should be maintained across nations so the workforce is

able to enjoy the same living standard in their foreign posting that they enjoyed at home.

Expatriate compensations consist of a base salary, allowances of various types, a foreign service

premium, benefits, and tax differentials.

Foreign Service Premium

A foreign service premium is extra income the expatriate receives for working outside

his country of origin. It gives an incentive to accept foreign postings. It compensates the

expatriate for having to live in an unfamiliar nation, isolated from friends and family, and having

to adapt to a new work situation.

Benefits

Expatriates many receive the same level of medical and pension benefits abroad as at

home.

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Taxation

The expatriate must pay income tax to both the host-country and the home

governments. Companies can make up the difference when a higher income tax rate in a host

nation decreases an expatriate’s take-home pay.

Allowances

Four kinds of allowances play into an expatriate’s compensation: housing allowances,

hardship allowances, education allowances, and cost-of-living allowances. A hardship allowance

pays for the expatriate being sent to remote location, for school costs, and for basic amenities

such as health care on par with the expatriate’s home nation. A cost-of-living allowance

guarantees that the expatriate will enjoy the same standard of living in the foreign positing as at

home. An education allowance gives an expatriate’s children appropriate schooling by their

home-country standards.

Base Salary

An expatriate’s base income is normally within the same range as the base salary for a

similar position in the home country. The base salary can be paid in either the domestic currency

or the home-country currency.

Expatriate Managers’ Training

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Various reasons for expatriate management failure include the inability of the

manager’s or the manager’s spouse to adept to a foreign environment. Cultural training, practical

training, and language training can reduce expatriate failure.

Language Training

A willingness to communicate in the language of the host country, even if the

expatriate is far from fluent, can build relations with domestic employees and improve the

manager’s effectiveness. Foreign languages are necessary for conducting business abroad in

order to enable management to relate more easily to a foreign culture, and to build a better image

of the company.

Practical Training

Practical training can help expatriate managers and their families to ease themselves

into day-to-day life in the host country, and adapt successfully.

Culture Training

Understanding a host country’s culture aids the manager in empathizing with the

culture, which will enhance her or his effectiveness in coping with host-country nationals.

Expatriates ought to receive training in the host country’s culture, politics, history, religion,

economy, and business practices as well as social behaviors. The spouse and family should be

included in cultural training programs.

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Management Development

Management development programs increase skill levels of managers through a mix of

ongoing management education and rotations of managers through a number of jobs within the

company to support varied experiences. They improve the overall quality and productivity of the

company’s management resources. Such companies require a strong unifying informal

management network and corporate culture to assist in controlling and coordinating activities

within the company. Socializing new managers into the value language or technical

competencies and rotating them through different jobs in various countries and norms systems of

the company is a good idea. Ericsson, for example, transfers core competencies and know-how

from foreign subsidiaries to the parent, and from the parent to foreign subsidiaries, as well as

between foreign subsidiaries.

Training and Development

Training for the manager aims at building that manager’s competence to perform a

specific job in a foreign position. Management development is simply a program to develop the

manager’s skills over her or his career with the company and to build experience as well as

cross-cultural sensitivity, which should enhance management and leadership skills.

International Labor Relations

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A company’s capacity to integrate and consolidate international operations to realize

location economies can be limited by organized labor. Labor unions try to receive greater job

security, better pay, and better working conditions for their members through collective

bargaining with management by strike or work protest such as (refusing to work overtime).

Multinational companies’ bargaining power comes from the power to move production to

another nation. Organized labor responds to the augmented bargaining power of multinational

companies by taking various actions:

– establishing international regulations on multinationals through United Nations

– installing international labor organizations

– lobbying for national legislation to restrict multinationals.

Organized labor has met with limited success in its effort to get national global bodies to

regulate multinationals. International Labor Organization (ILO) and the organization for

Economic Cooperation and Development (OECD) have established work agreements for

multinational companies to follow in labor relations.

Performance Evaluation

We are able to decrease bias in the performance evaluation process to evaluate variables

that are critical aspects of an expatriate’s performance. A former expatriate who served in the

same location ought to be involved in the evaluation to reduce bias.

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Contribution

This topic contributes to the understanding of:

• Research, which shows that many expatriate workforces encounter problems that limit

both their effectiveness in a foreign posting and their contribution to the enterprise

when they return home.

• The discussion of the advantages and disadvantages of polycentric, ethnocentric, and

geocentric staffing policy.

IHRM in the Host Nation Context

International human resource management supports more than international assignments

and management. This chapter deals with various themes to global HR. The chapter concerns HRM

in the host-country context. We first study the question of whether the multi-national can

standardize its work practices or if factors in host nations force implications and adaptations for

IHRM. Factors such as mode of operation, host-nation culture, maturity, firm size, subsidiary

mandate, and international experience are examined. We also look at IHR practices for retaining,

developing and retrenching domestic staff and the HR implications of standardizing

communication through controlling IHR practices and adapting a common corporate language

applied by foreign subcontractors. Other issues concern industrial relations, such as the

interaction between international trade unions, and issues in the global and regional level labor force

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context, for example, in the European Union. While the international nature of business might

call for increased consistency, the variety of cultural environments might call for differentiation.

In practice, the following conditions ought to be met:

– Willingness of headquarters staff not only to acknowledge cultural difference but also

to take active part in cultural practices where appropriate.

– Parent company’s own special channel of managing human resources should reflect

some values and assumptions of its home culture.

– Real genuine belief by all parties involved that more creativity in managing people can

be developed as a result of cross-cultural learning.

– Parent company organization exhibits strengths and weaknesses, especially abroad.

Effective international management requires sensitivity to various host-country requirements

about employment, for example, hiring, promotion and reward practices, and respect for local

customs.

Controlling IHRM Practices of Host Nation Subcontractors

A crucial problem is the management of the extended global supply chain and ensuring

that quality standards are met. However, especially for multinationals with well-known brands,

for example, Levi Strauss, Nike, Reebok, Benetton, and Adidas, the critical management

challenge has been the reaction of its Western customers to employment practices and supplies

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by its subcontractors in nations such as China, India, Indonesia, Turkey, Honduras, El Salvador,

the Philippines, and the Dominican Republic. Many are accused of condoning despicable work

practices such as the application of long working hours for minimal pay, child labor and unsafe

working environments, and working conditions that would not be allowed in their home nations.

Various multinationals’ valuable brands and corporate reputations rapidly introduce their own

agreements which subcontracting companies must sign on to. These agreements are composed of

acceptable working conditions, minimum wages, and non-use of child labor. There is now a

universal standard, named the Social Accountability 8000, whose principles are drawn from

United Nations human rights conventions.

Large multinationals find it challenging to ensure adherence to work agreements within

their own subsidiary operations. Domestic joint venture partners monitor the day-to-day

operations of the international joint venture (IJV), and how many staff the multinational can

place in the IJV to oversee adherence to its work agreement relating to work practices, for

example, in safety and health issues as well as compliance to domestic labor regulations and

laws.

IHRM managers ought to play the following roles:

– Makes visits to global subcontractors each period.

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– Reviews appraisal and reward systems, taking into consideration compliance to work

agreements.

– Reviews work condition agreements.

– Analyzes cost-benefit of an expatriate stationed in the nation and oversees subcontractor

compliance.

– Trains domestic consumers and agents in elements of the work agreement so that they

can control subcontractors’ adherence to quality checks and workplace practices.

IHRM Implications of Language Standardization

Language standardization helps informal communication through the development of

intra-organizational networks. Language standardization pressed on employees helps them to

become competent in the corporate language and carries an implicit message concerning career

development. The common language should be applied through training and development

programs. The present attraction of India over China for business process outsourcing and IT is

partly due to the size of its English-speaking population. Business reality for multinationals

transitioning into foreign markets through an acquisition or merger, or IJV which has been

redeployed from the domestic partner’s operation, is that buying into English language skills is

essential.

Cultural Host Country and Workplace Environment

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Appropriate behavior should be instilled in the local workforce through hiring practices

and training programs as well as through the international’s way of operating, which has been

accepted in the manner intended. The effectiveness of expatriates as agents of socialization have led

multinational to localize management prematurely. Factors that affect standardization are

workplace environment and host-country culture, operation, the maturity and size of a company,

as well as the importance of the subsidiary. National culture is a variable in IHRM society, and

that group shares a distinct life with attitudes, common values, and behaviors that are transmitted

over time in a dynamic process. Work behavior is culturally influenced and built into

expectations and role definition. Common corporate culture may be crucial for cohesion.

Standardization of work practices concerns behavior modification through staff rotation,

corporate training programs, promotions, and rewards, most of which fall into the ambit of the

international human resource function.

A multinational’s capacity to impose standardized work practices is affected by cultural

differences that can create resistance to change from subsidiary staff. An acquisition can provide

the multinational with market advantages, but its ability to transfer systems, technical

knowledge, and HR practices may be restricted. The domestic firm requires investment and

restructuring to make it operable. As well, this should include human resources, with a high

demand on expatriates initially. Companies that take a longer-term view seek to influence the

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work practices and operations of the IJV. HR needs time and considerable effort to integrate

domestic IJV managers into the global family. The international managing enterprise undertakes

the usual management functions as well as provides skills, expertise, resources, and trains the

domestic employees. Management contracts are effective ways of operating internationally. Host

governments look at the management contract as the importer of inappropriate technology and as

foreign control of domestic operations. Domestics own facilities while foreign managers run it.

This gives the multinational considerable power over sourcing of materials, resources, and day-

to-day operations.

Critical factors influencing multinational operations are the size and maturity of the

international. Smaller multinationals and newcomers to international business do not have the

same level of resources or ability as do larger, more established multinationals; therefore, an

alternative mode of operation such as a joint venture can become an attractive proposition. While

the selection practices used in different nations are inching toward international convergence, we

expect domestic cultures to continue affecting the hiring practices. Human resource managers are

required to be culturally sensitive when devising the procurement systems in various cultural

environments. The ‘best global resource management practices’ may be the ones best adapted to

domestic and cultural difference. Chinese managers lack decision-making skills, and corporate

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management training is needed that provides IHRM skills appropriate to the Chinese skills,

within the context of problem solving in high-pressure situations.

Discussion

The discussion of international HRM issues generally tends to be biased in the direction of

expatriate management, essentially that of parent-country nationals, partly owing to their strategic

importance. In this chapter, we try to redress the balance by examining IHRM issues in

subsidiary operations. We study the following topics:

• Developing local staff.

• Controlling IHR practices applied by foreign subcontractors.

• Factors influencing adaptation of work or standardization practices, and the role of

IHRM including workplace environment and host-country culture, firm size, mode of

operation, international experience and maturity as well as subsidiary mandates.

Contribution

This section concentrates on problems relating to IHRM and work practices in the host-

country context. We have studied:

• Controlling the IHRM practices of international subcontractors by using work

agreements.

• The skill level of the local workforce, cheap labor, and training are examined.

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• The adaptation and standardization debate as it relates to subsidiary operations;

– We study management contracts as a mode of operation that may influence

standardization of work practices in foreign countries.

– The host-country culture and workplace environment as contributes to work

outcomes.

• To recommend IHRM implications of language standardization. The application of a

corporate language, usually English, has implications for subsidiary staff in areas such as

recruitment for positions, attendance at enterprises, promotions, and training programs.

Conclusions

International human resource management (IHRM) has progressed rapidly into new

academic legitimacy and professionalism, and is penetrating at institutional, national and

international levels. Multi-national and international companies are faced with the complexity of

cross-national and cross-cultural issues. In this framework, international HRM (IHRM) has

emerged and gained legitimacy.

Nowadays, international human resource management struggles to understand just what is

involved in basic IHRM ethics, especially when considering what the global HR manager ought

to do when an employment practice is viewed as wrong in the home country or illegal but is

acceptable and legal in the host country. As well, what to do when foreign standards or attitudes

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are viewed as lower than those held in the home country; for example, race or sex discrimination

in hiring, compensation, or job placement; providing unsafe working conditions; or apply of

child labor.

Researchers study the contemporary challenges facing IHRM and offer insights into some

of its many confusing issues. They must take note that internationalization and globalization of

trade have essentially transformed the challenges facing the workforce in the twenty-first

century. Although technological advancements encourage faster transportation of services,

goods, and information, and by doing so help further cross-fertilize advancements and

technological innovation, the new ethic is for fostering such innovations and developments

within the management of human resources. Such cross management ideas, principles, and

values in IHRM need comparative insights from a field of management practice and study.

The research concentrates on International Human Resource Management. IHRM activities

composed of human resource, staffing, management development, performance apprised evaluation,

labor relations, and compensation. The research also presents the following aspect:

• Expatriate failure is able to be decreased by recruitment procedures that screen out

inappropriate candidates. The successful expatriates possess self-confidence and self-

esteem.

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• International business needs IHRM policies to follow the company’s strategy and with

its informal and formal structure and controls.

• Staffing policy concerns recruiting employees who have the skills needed to conduct

special jobs. Staffing policy is a tool for promotion and development.

• A polycentric approach appeals to host-country nationals to manage foreign

subsidiaries and parent-country nationals in key positions.

• An ethnocentric policy fills key management positions with parent-country nationals.

• A geocentric policy finds the best person for crucial jobs regardless of their nationality.

• It is difficult to appraise the performance of expatriate managers objectively.

• Country differences in compensation are difficult in that different standards are adopted

in each nation.

• Expatriate pay considers equalized purchasing power so the workforce is able to enjoy

the same living standards in their foreign posting as they had at home.

• Training concerns language training, cultural training, and practical training, to both the

spouse and family of the expatriate manager, as well as to the manager.

• Management development tries to augment the skill levels of managers’ education and

to rotate them throughout the company, to build informal management networks and a

strong unifying culture.

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• Labor Union can have bargaining power with threats to move production to other

nations.

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