International HR Issues so create balance is

by Jeremy Bradley; Updated October 29, 2018

something to strive
Related Articles for.

 1HR Trends in Globalization Cultural Diversity and

 2Global HR-Related Issues in Business Settings Global HR Issues
 3Global Trends That Will Affect Human Resources
 4Job Requirements of Global HR Specialist A salient issue in

international HR is
Operating human resources across geographic and cultural boundaries can understanding and
often prove difficult for small-business owners and managers. Nonetheless, maintaining cultural
with the widespread use of technology, the ability to communicate with diversity. Working
anyone around the world and access to new and varied markets, with people from
international HR issues are important to grasp. different locations or
Compliance and  International HRM Issues from different cultural

As businesses begin to expand into the global marketplace or as they hire backgrounds mean

employees from diverse geographic and cultural backgrounds, they may adapting the

have to adapt to new labor laws and tax liabilities. Doing business in business's work style

Europe, for example, will require the business to pay value added tax. to new ideas, new

Hiring employees who are non-naturalized US citizens might require HR to ways of

apply for work visas and report economic data to the federal government. communicating and

Compliance with international law can be an issue for the under-educated unfamiliar social

business owner or HR manager, because these laws tend to be complex practices. If you hire

and sometimes difficult to implement. Keeping well-informed of the legal an employee from

requirements for the business's operations can help alleviate some of this England, for example,

complexity and lessen the chances of landing in legal trouble. the employee might

Scope of Human Resource Management have different ideas

about how to manage

With an increasing number of busineses operating on an international
employees or on how
scale, the impact of globalization on hr can be tricky to navigate.
to run technology
Globalization means various laws, cultures and norms have to be taken
processes based on
into consideration when onboarding and crafting HR regulations. Some
her experiences back
countries are more forward thinking where gender is concerned than
home. Being open to
others, and this distinction can lead to misunderstandings or worse, the
new work styles and
loss of key personnel. It really would not be that hard to have a male
cultural differences is
manager handle the day-to-day operations in an area where female
the hallmark of
managers are frowned upon, just in case. Understanding the mechanism
cultural diversity in
that makes each culture tick and implementing as little or as much needed
HR.
Benefits and Compensation 3

Benefits and compensation are the backbone of any HR strategy, but in

Notes
international HR, benefits and compensation are even more important in

focusing on the work-life balance of employees. The idea behind work-life

balance is to provide employees with programs and initiatives that improve

both their personal and professional lives. This is considered part of

international HR, because many multinational companies have already

implemented programs such as flexible working time, paternity leave,

extended holidays and on-site childcare. In fact, many nations around the

world, including much of Europe, mandate these programs by law.

Implementing them on the local scale is one of the challenges and,

ultimately, rewards of international HR.

Training and Development

Related to the idea of benefits and compensation in international HR are

training and professional development programs. Training programs

typically encompass in-house seminars and meetings designed to give

employees on-the-job knowledge of skills that are important to doing

business globally. HR might offer language classes, for example.

Professional development encompasses the "extra" training that HR

provides to its employees, such as allowing them to attend networking

events and conferences, global training seminars and other specific

competency-based programs. Professional development helps employees

to hone their skills in global marketing, international business development

and finance trends.

Meaning of IHRM

It is rather difficult to answer the question: What is international human

resource management (IHRM)? as a number of implications are involved in it. For
example:
(i) A domestic company operating within the national boundaries employs
some foreign employees/expatriates in addition to nationals of the
country. Can we term this practice by a domestic company as IHRM?
(ii) A multinational company having a branch office in a host country
employs only the nationals of the host country. Can we call the practice
of managing host country national employees by an MNC in its branch
office as IHRM?
(iii) A multinational company employs exclusively its home country nationals
in its home country office/headquarters. Can we term this practice as
IHRM?
4 International Human Resource Management

Notes The answer to the practices listed above under (i), (ii) and (iii) are invariably
come under the scope of IHRM as there would be certain elements of
internationalization of human resource management practices. In addition, the
HRM practices of a multinational or a transnational company employing home
country nationals, host country nationals and third country nationals or any
combination of these nationals invariably come under the practices of IHRM.

Now, Another Question is: Are there any differences in the functions of
domestic human resource management and international human resource
management? The answer is certainly 'Yes' as there are certain activities that
should be performed when employees are drawn from foreign countries, viz.,
arranging for work permit, visa, cross-cultural management, socialization and
deportation in times of emergencies. Most of these activities are related to
'immigration.'

In addition, certain other functions like resolving the disputes between

domestic employees and expatriates, cross-cultural management in varying degree
compared to domestic HRM (collaborating domestic employees and foreign
employees) and additional services to expatriates are peculiar to IHRM.

Thus, the organizations dealing with international employees perform

necessary immigration and other activities in addition to various HRM activities
like procuring, developing, compensating, integrating and maintaining.

Definition of IHRM: IHRM is defined as, performing HRM and its related
activities and arranging for related and necessary cultural and immigration facilities for
prospective and current employees, by organizations operating in domestic and/or
foreign countries.(Subba Rao Pulapa, 2007).

Thus, it is clear that IHRM deals with all functions of HRM in addition to
performing other functions exclusively for expatriates. However, certain additional
functions like resolving the disputes between domestic and foreign employees,
cross-cultural management at varying levels and collaborating domestic
employees and foreign employees are also to be performed under IHRM.

P. Morgan defines IHRM as the interplay among human resource activities

(viz., procure, allocate and utilize) types of employees (viz., host-country
nationals, parent country nationals and third country nationals) and countries (viz.,
host country, home country and others). (See Fig. 1.1) This definition is silent
about certain human resource activities that are peculiar to IHRM like arranging for
immigration facilities. In addition, this definition ignores the expatriates/foreign
employees other than host country nationals, parent country nationals and third
country nationals, i.e., foreign employees working in a domestic company.

In fact, this definition ignores those IHRM activities of a domestic company.

However, it indicates 'other countries' under 'countries category' without
mentioning 'other foreign employees' category of expatriates. This definition fails
to reflect a comprehensive meaning of IHRM. Therefore, the earlier definition on
IHRM seems to be comprehensive. This comprehensive definition on IHRM reads
as follows:

IHRM is defined as, performing HRM and its related activities and arranging
for related and necessary cultural and immigration facilities for prospective and
current employees, by organizations operating in domestic and/or foreign
countries. Fig. 1.2 depicts the model of IHRM as suggested by Subba Rao.

After knowing the meaning of IHRM, we would be eager to know how IHRM
differs from domestic HRM. Now, we examine the differences between domestic
and international HRM.
International Human Resource Management: An Overview
Hum
activ
 5
Notes

Procure AllocateUtilize

Other

Home
Host-country nationals (HCNs)

Parent-country nationals (PCNs) Host

Countries
Third-country nationals (TCNs)

Type of Employees

Fig. 1.1: A Model of IHRM (Morgan)

Types of Organizations
x Domestic organizations employing foreigners

x Parent companies

x Subsidiary companies

x Joint Ventures

x Other types of organisations operating in foreign countries

Types of Human Resources International HR Activities

x Domestic human x Procuring
resources/Nationals of the Host x Developing
country x Compensating
x Parent country Nationals x Utilizing
x Third country Nationals x
x x Immigration/Migration
Other types of foreign employees Socialization Services
x Security
x Repatriation/Deportation
x Cross-cultural management
Fig. 1.2: IHRM Model (Subba Rao Pulapa, 2007)

International HRM is performing HRM activities by a domestic organization

that employs foreigners along with nationals and by
international/global/multinational/ transnational organizations.

1.2 DIFFERENCES BETWEEN

DOMESTIC BUSINESS AND
INTERNATIONAL
BUSINESS
Basically, domestic business and international business operate on similar
lines. But there are certain differences between these two businesses. The
significant differences between these two emerge from foreign exchange, quotas,
tariff, regulations of a number of governments, wide variations in culture and the like.
Table 1.2 presents the differences between domestic business and international
business.
6 International Human Resource Management

Notes TABLE 1.2: DIFFERENCE BETWEEN DOMESTIC BUSINESS AND INTERNATIONAL BUSINESS

S.No. Domestic Business International Business

1. Approach: Domestic business’s International business’s approach can be

approach is ethnocentric. It does polycentric or regiocentric or geocentric.
mean that domestic companies International business under polycentric
formulate strategies, product approach enters foreign markets by
design etc. towards the national establishing foreign subsidiaries. Under
markets, customers and the regiocentric, they export the product to
competitors. the neighbouring countries of the host
country. Under the geocentric approach,
they treat the entire world as a single
market for production, marketing,
investment and drawing various inputs.
2. Geographic Scope: Domestic Geographic scope of the international
business’s geographic scope is business varies from the national
within the national boundaries of boundaries of a minimum of two countries
the domestic country. up to a maximum of the entire globe.
3. Operating Style: Domestic Operating style of the international
business’s operating style business can be spread to the entire
including production , marketing, globe.
investment, R&D, etc.is limited to
the domestic country.
4. Environment: Domestic business International business analyses and
mostly analyses and scans the scans the relevant international
domestic environment. environment.
5. Quotas: The quotas imposed by The international business has to operate
various countries on their exports within the quotas imposed by various
and imports not directly and countries on their exports and imports.
significantly influence domestic
business.
6. Tariffs: The tariff rates of various The tariff rates of various countries directly
countries do not directly and and significantly influence the international
significantly influence the business.
domestic business.
7. Foreign Exchange Rates: Foreign Foreign exchange rates and their
exchange rates and their fluctuations directly and significantly affect
fluctuations do not directly and the international business.
significantly affect the domestic
business.
8. Culture: Mostly domestic culture of Mostly culture of various countries affects
the country affects the business the business operations including
operations including product product design of international business.
design.
9. Export-Import Procedures: International business is significantly
Domestic business is not normally influenced by export-import procedures of
influenced by export-import various countries. They need to follow
procedures of the country. those procedures.
10. Human Resources: Domestic International business normally employs
business normally employs the the people from various countries.
people from the same country. Therefore, the task of human resource
Therefore, the task of human management is much complicated.
resource management is not
much complicated.
International Human Resource Management: An Overview 7

Notes
11. Markets and Customers: International business should understand Domestic companies meet the
markets and customers of various needs of the domestic markets countries.
and customers. As such, it would be appropriate for them to understand the domestic markets and
customers.

International HRM differs from domestic HRM in six major dimensions, viz.,
(i) wider nationalities of employees, (ii) variety of functions to be performed, (iii)
influence of international environment, (iv) broader and deeper relationships, (v)
different approaches for the domestic functions and (vi) enduring complexity of
domestic HRM activities, as presented in Fig. 1.3.

Wider
Nationalities

Different Broader
Approaches for Relationships
the Functions and
Complexities

International
Human Resource
Management

Influence of
Variety of International
Functions Environment

Enduring
Complexities of
HRM Activities

Fig. 1.3: Major Dimensions of IHRM – causing Differences from Domestic HRM

1. Wider Nationalities: IHRM deals with the employees drawn from a

number of nations in contrast to domestic HRM, where employees are
drawn from one nation. People from different nations come with a variety
of cultures, values, ethnical interpretations, religion beliefs and the like.
Cultures and behaviour of people do also vary based on geographical
regions. Nath and Sadhu summarized the four value dimensions of
Hofstede based on geographic regions. According to the study
conducted by Nath and Sadhu, North Americans are individualistic, low
in power distance, medium in uncertainty avoidance, and masculine,
whilst Japanese tend towards collectivism, high and low in power
distance, high in uncertainty avoidance, masculine and feminine.
Japanese respect authority, but at the same time
8 International Human Resource Management

Notes the superior must be a warm leader. Chinese tend to collectivism, low in
power distance, low in uncertainty avoidance and lay emphasis on
tradition and coustom.
Exhibit 1.1 presents the cultural milieu.

Roneu and Shenkar, based on a synthesis of Hofstede developed eight

country clusters grouped according to the similarities found in those studies of
employee attitudes towards:
 Importance of work goals
 Need fulfillment and job satisfaction
 Managerial and organization variables
 Work Role and interpersonal orientation
The eight country clusters include: Nordic, Germanic, Anglo, Latin
European, Latin American, Far Eastern, Arab, Near Eastern and independent
includes India, Brazil, Japan and Israel. Exhibit 1.2 presents the clusters of
countries based on attitudinal dimensions.

Fons Trompenaars conducted a research study based on four value

dimension, viz., obligation towards personal and society, emotional orientation in
relationship towards personal and society, involvement in relationships and
legitimization of power and status. The countries were clustered as presented in
Exhibit 1.3.

Findings of these three studies indicate that behaviour of the people vary
according to the geographic region.

Culture of Various Countries

Now, we discuss the culture of various countries that influences IHRM.

Japan: Japanese culture that affects working relationship is based on

'peace and harmony'. Japan ranks high on pragmatism, masculinity, uncertainty
avoidance and power distance. Japanese attach importance to loyalty, empathy
and guidance of subordinates. They mix authoritarianism and humanism at work
place like family system. Japanese prefer to co-operate and collaborate with their
work groups. They emphasize on participative management, consensus problem
solving and decision making. They avoid open expression and conflicts and
shame of not discharging one's responsibilities. They show devotion to work,
collective responsibility and high employee productivity. Exhibit 1.4 presents a
comparison of Japanese and American culture that affects the behaviour of
people at work place.

America: Americans are mostly individualistic. Their behavioural aspects

include: risk-taking, bold initiative, acting spontaneously, outspoken, critical
thinking, logical reasoning, clarity and frankness, confronting and threatening.

Therefore, there are wide conflicting situations in managing Americans in

Japanese firms and Japanese in American firms. Americans offend the indirectness
and sensitivity of Japanese who show the patience. Japanese think that
Americans have no spiritual quality and little employee loyalty. (See Box 1.1).

Germany: Though the Germans rank high on individualism, the behaviour

of Germans is less individualistic than that of Americans. They are high on
uncertainty avoidance, masculinity and less on power distance. Germans prefer to
around familiar people and situations. They denote on detailed evaluation before
committing themselves. Germans are more of rule minded and strict with the use
of time. Decision-
International Human Resource Management: An Overview 9

making is not highly centralized and in fact it is by consensus. They follow strict Notes
departmentalization, division of work, closed door policy and compartmentalization
in organizations and at home. They are conservative, value privacy, politeness
and formality. Germans discussions are lengthy as they need detailed information
before and during negotiations. German is a low-context society and therefore
communication is explicit.

South Korea: Koreans are high on collectivism and pragmatism, low on

masculinity, moderate on power distance and high on uncertainty avoidance.
They follow traditional Confucian teachings of spiritualism and collectivism. They
respect family, authority, formality, class and rank in the society. They are
aggressive, hard working, demonstrative, friendly and hospitable. They emphasize
on family relationships, personal relationships, network etc. Business is based on
honour and trust and most of the contracts are oral. Social and professional
reputations are based on relationships. Koreans like praise but not criticism.

Saudi Arabia: "Islam 'Permeates' Saudi life. Allah is always present,

controls everything, and is frequently referred to in conversation." Employees
spend more than two hours a day in prayer. Work culture/behaviour is mixed with
religion, politics and social life.

Arab culture has norms of reciprocity of favours, support, and obligation.

Family relation and personal relations are close. Outsiders have to establish
trusting relationship and honour before establishing any business relationship.
Exhibits 1.5 and 1.6 present culture and behaviour in Saudi Arabia.

China: Small business is peculiar to China and the extended families run the
small businesses. Members of the extended family are also the partners at
different stages of the supply and value chain. Guanxi is prevalent in China , that
indicates the network of relationships that the Chinese cultivate through friendship
and exchange of favours and gifts to provide an obligation to reciprocate favours.
Major differences between Chinese management style and Western
management style are human centeredness that put people ahead of business
relationship, but based on friendship, loyalty and trust. Exhibit 1.7 presents
Chinese and Western Cultures and the Implications for Management.

India: Indians are high on collectivism in case of family relations and

individualistic at work place. Family relations and social relations are strong. They
are also high on power distance and masculinity. They respect family authority,
social class and rank. They are aggressive, hard working, demonstrative, friendly
and hospitable. They meet the challenges and thrive for goals. Business is based
on trust and honest and most of the contracts are oral. Indians are loyal to the
organization and profession (see Box 1.2).

Implications: Analysis of the culture of various countries reveals that

behaviour of the people can be categorized based on the geographical region.

Human resource managers as well as line managers of organizations that

employed people from foreign countries should understand the culture of the
countries to which the employees belong, and manage their employees
accordingly. In fact, many human resource issues are culture sensitive. In fact,
HR managers and line managers are well aware of the culture of their country
and therefore, need not know the cultures of other countries in managing the
people in case of domestic HRM. Thus, IHRM is different from domestic HRM.

Now, we shall discuss, the next issue, i.e., broader relationships and
complexities.
 10

No
te
s

EXHIBIT 1.1: THE CULTURAL MILIEU

Int
er
na
tio
nal
Hu
m
an
Re
so
ur
ce
M
an
ag
e
Source: Quoted in Helen Deresky, International Management, Prentice Hall of India (P) Ltd., New Delhi, 2004, p.98. m
 Int
EXHIBIT 1.2: CLUSTERS OF COUNTRIES BASED ON ATTITUDINAL DIMENSIONS er
na
tio
nal
Near Eastern Nordic Hu
Turkey Finland Norway m
an
Arab Denmark
Iran Germanic Re
Bahrain
Abu-Dhabi Greece Sweden Austria so
United Arab Emirates Germany ur
Kuwait ce
Oman Saudi Arabia Switzerland
M
Singapore Malaysia United States
Hong Kong an
For Eastern Canada Australia
Anglo ag
Philippines Argentina France New Zealand
South Vietnam United Kingdom
Indonesia Venezuela e
Belgium Ireland South Africa
Taiwan Mexico Chile m
Thailand Latin American Latin European Spain en
Peru Italy t:
Colombia Portugal An
Brazil Israel Ov
Independent er
Japan India

Source: S. Ronen and O. Shenkar, "Clustering Countries on Attitudinal Dimensions: A Review and Synthesis",
Academy of Management Review (September 1995): p. 449, Quoted in Helen Deresky, op. cit., p. 99.

No
te
s

11
 12

No
te
s

‘EXHIBIT 1.3: TROMPENAARS' VALUE DIMENSIONS

Int
er
na
tio
nal
Hu
m
an
Re
so
ur
ce
M
an
ag
Source: Adapted from Lisa Heocklin, Managing Cultural Differences (Wokingham, England: Addison-Wesley), and e
The Economist Intelligence Unit, 1995. Based on Trompenaars, 1993. Quoted in Helen Deresky, op.cit., p. 100. m
 EXHIBIT 1.4: THE AMERICAN-JAPANESE CULTURAL DIVIDE Int
er
na
tio
nal
Hu
m
an
Re
so
ur
ce
M
an
ag
e
m
en
t:
An
Ov
er

Source: R. G. Linowes, " The Japanes Manager's Traumatic Entry into the United States: Understanding the American-Japanese
Cultural Divide". The Academy of Management Executive VII, no. 4 (November 1993), p. 24. Quoted in Helen Deresky,

op.cit., p.108.

No
te
s

13
14 International Human Resource Management

Notes BOX 1.1: DIVERSITY IS BIG BUSINESS AT THE PEPSI BOTTLING GROUP

PBG is currently seeking diverse John Berisford. Its primary business is to

engineers and IT pros for its New York set diversity strategy, including a three-
State HQ, forty-five plants in the U.S. and year strategic plan and annual initiatives
another fifty plants worldwide. W hen the toward its goals. Board members also
Pepsi Bottling Group (PBG) spun off from participate in PBG's affinity networks and
PepsiCo and became a publicly-traded groups, which gives them the opportunity
company in 1999, it had an opportunity to to test the waters and get feedback from
develop new diversity strategies. The employees. IT VP Michele Leslie, for
result is a global company that puts example, participates in Women at PBG.
diversity first both with its employees and Ops VP Tony Ware is a member of the
with its customers and communities. Black Employees Association.
"W e are very customer-focused, The PBG networks partner with many
because we're selling to the people who of PepsiCo' s affinity groups. "The
distribute our products," says Cecilia networks are primarily focused on
McKenney, group VP of HQ HR. Part of development of their members," says
the group's diversity goal is to create a Mc Kenney. They also help identify
competitive advantage in the marketplace, employees for sponsorship to attend
she explains." Selling soda in local markets professional conferences. All new
means having a substantial Cuban- employees participate in a diversity
American workforce in Miami and Asian "foundation training" course. The current
Americans in San Francisco. We want to 38,000 North American employees will
look like the marketplace," McKenney says. participate in another course called
PBG is actively seeking diverse engineers "diversity matters" in 2006.
and IT pros for HQ, forty-five U.S. plants New managers get further training.
and fifty more plants worldwide. PBG "making diversity matter" course shows
The
sells more than half the Pepsi-Cola them how to leverage differences on their
beverages sold in North America and 40 teams. "Selecting the best" stresses
percent of Pepsi-Cola beverages managing for excellence. PBG recruits
worldwide That includes manufacturing, experienced middle management engineers
like
selling and delivering Pepsi-Cola products for supply chain, quality, warehouse ops,
soda, Aquafina bottled water,
engineering and production management. Tropicana
juice drinks, Lipton iced tea, Across the company, it also brings in 100 Starbucks
Frappuccino and Double shot, to 150 campus hires annually, up to a third the SoBe
line of beverages and Dole of them engineers for operations positions. single-serving
juice and blends.
It all adds up to nearly 200 million In theminorities
were campus class of 2004,
and 55 32 women.
per cent per cent
glasses of these beverages a day in the Annual planning reviews help
U.S., Canada, Mexico and Europe. And employees develop their careers. A
PBG also sells regional products in separate diversity review for middle
Greece, Mexico, Russia, Spain and
management focuses on accelerating the
Turkey, and does some distribution for development of diverse talent. Mentoring
other beverage companies. PepsiCo makes programs are another critical component,
and sells the syrup PBG uses to make McKenney says. "Nobody is too busy to
soda, and provides marketing and
mentor." In a program called "focus on
advertising support. W hen PBG was five," execs each mentor up to five high-
formed, it took more than three quarters potential, often diverse employees for a
of the employees of Pepsi-Cola Co, and year. As they r ise in the company,
PepsiCo retained 40 per cent ownership promising management folks may be
of PBG. The group has grown since the selected to attend the leadership academy,
spin off. "We continue to increase our where senior execs participate as mentors.
distribution of Pepsi products through PBG likes its people to get involved with
acquisition of other bottlers," McKenney
the communities where it sells its products,
says. which means, of course, everywhere.
PBG puts its diversity principles into Pepsi Bottling Group Foundation's "W The
e are
practice with a diversity advisory board involved neighbours" (W IN) program
made up of execs from each business connects employees with community
unit and from headquarters. The board needs.
includes minorities and women and is co- The foundation's new "rising stars"
chaired by COO Eric Foss and SVP of HR program awards scholarships to high-
International Human Resource Management: An Overview 15

Notes
potential high school kids who need help benefits, including a full slate for
to attend college. PBG works with domestic partners. Compressed
community groups in Atlanta, Baltimore, workweeks, flexible scheduling and
Boston and Phoenix to identify recipients. part-time work can be arranged,
The company offers its employees flexible depending on specific needs.

Source: http://www.diversitycareers.com/articles/pro/05-decjan/dia_pbg.htm (Accessed on 12/11/

2007).

EXHIBIT 1.5: BEHAVIOUR THAT WILL LIKELY CAUSE OFFENSE IN SAUDI ARABIA

• Bringing up business subjects until you • Bringing gifts of alcohol or using

get to know your host, or you will be alcohol, which is prohibited in Saudi
considered rude. Arabia.
• Commenting on a man's wife or female • Requesting favours from those in
children over 12 years of age. authority or esteem, for it is
• Raising colloquial questions that may considered impolite for Arabs to say
be common in your country but no.
possibly misunderstood in Saudi Arabia • Shaking hands too firmly or pumping-
as an invasion of privacy. gentle or limp handshakes are
• Using disparaging or swear words and preferred.
off- colour or obscene attempts at • Pointing your finger at some or
humour showing the soles of your feet when
• Engaging in conversations about seated.
religion, politics, or Israel.

Source: P.R. Harris and R.T. Moran, Managing Cultural Differences, 5th ed. (Houston: Gulf
Publishing, 2000).
Quoted in Helen Deresky, op.cit. p.114.

EXHIBIT 1.6: THE RELATIONSHIP BETWEEN CULTURE AND MANAGERIAL BEHAVIOURS IN SAUDI ARABIA

Cultural Values Work group loyalty

Tribal and family loyalty Paternal sociability
Stable employment and a sense of
belonging
A pleasant workplace
Careful selection of employees Nepotism
Arabic language Business as an intellectual activity
Access to employees and peers
Management by walking around
Conversation as recreation
A person rather than task and money
Close and warm friendships orientation

Islam Theory Y management

Avoidance of judgement
Sensitivity of Islamic virtues
Observance of the Quran and Sharia
Majlis Work as personal or spiritual growth
Consultative management
A full and fair hearing
Adherence to norms
Honour and shame
Clear guidelines and conflict avoidance
Positive reinforcement
 16 International Human Resource Management

Notes
Training and defined job duties
Private correction of mistakes
An idealized self Avoidance of competition
Centralized decision
making
Assumption of responsibility appropriate
position
Polychronic use of time
Empathy and respect for the self-image
of others
Independence Right-and left-brain facility
A bias for action

Male domination Patience and

flexibility Sensitivity to
control
Interest in the individual
Separation of sexes
Open work life; closed family
Source: R.R. Harris and R. T. Moran. Managing Cultural Differences 4th ed. (Houston: Gulf
Publishing, 1996),
Quoted in Helen Deresky, op.cit. p.115.

EXHIBIT 1.7: A SUMMARY OF WESTERN AND CHINESE CULTURAL DIFFERENCES AND THE IMPLICATIONS FOR
MANAGEMENT
Comparing pertinent features of the West with that of China, we can make the
following distinctions:

. The West China

Individual rights Individual duty and collective obligations
1.3 ISSUES IN RuleIHRM
by law International Human
Rule by Resource
personality Management
and imperial authority
The collective right to grant, question, and Unquestioning submission to hereditary
reject politicaldefined
Broadly authorityIHRM is the process of authority backed
procuring, by force and effectively
allocating,
utilizing human resources in a multinational corporation. and
Political and ethnic pluralism Monolithic power homogeneity
If the MNC is simply
Cultural interaction Cultural isolation
exporting its products, with only a few small offices in foreign locations, then the
Sufficient
task resources toHRsupport
of the international manager early An agrarian,
is relatively subsistence
simple. However,economy
in global and
firms
urbanization, specialization of labour, and endless hardship, both natural and imposed
human resource managers must achieve two somewhat conflicting strategic
large scale trade AN internal orientation
objectives.
An externalFirst, they must integrate humanPermanence
orientation resource policies and practices across
in situ
a number of subsidiaries
Physical and social mobility in different countries so that overall corporate
Reliance on precedent, intuition, and
objectives
can be achieved.
Reliance on reason Atand
thethesame time,wisdom
scientific the approach to HRM must be sufficiently
flexible
method to allow for significant differences inPassive,the type of HRsubmission
fatalistic policies and practices
that
An are most effective
aggressive, in different
active approach business and cultural settings. Specifically
to nature,
compared
technology, with
anddomestic
progress HRM, IHRM is more important as it (1) encompasses
more functions, (2) has more heterogeneous functions, (3) involves constantly
Resulting differences in Chinese value, attitudes, and behavior with managerial implications:
changing perspectives, (4) requires more involvement in employees’ personal lives,
1. Larger power distance–a greater willingness to accept the authority of others
(5) is influenced by more external sources (6) involves a greater level of risk than
2. Collectivism
typical domestic HRM.
a. Deriving satisfaction less from task competence and achievement and more from
Whena sense of contribution
compared to a group
with domestic effort resource management, IHRM requires
human
b. More
a much valueperspective
broader place on the on comfort
evenandthe
availability of mutual support
most common and affiliation
HR activities because
with a group than on independence, self-reliance, privacy and personal space
manpower moves across the political borders and work globally. Generally, global
c. More cooperativeness and less competitiveness as individuals
employees are known as expatiate employees. There are various complexities of
d. Harmony and humility rather than aggressiveness
operating in different countries and employing different national categories of
e. High-content communication rather than directness and forthrightness
employees. And such complexities can differentiate domestic HRM from IHRM.
f. Recognition of group, rather than individual, performance
Dowling argues that the complexity of IHRM can be attributed to many of factors
g. More
such as morerelativistic, particularistic
HR attitude, the need ethnical standards
for broader perspective, more involvement of
employee’s personal lives, mixing of work force of 3. various
An external locus of control
countries, risk
4. More reliance on accumulated
exposure and broader external factor influences. wisdom that on reason and objectivity
5. Holistic thinking and synthesis rather than linear thinking and analysis
To operate in Global environment , HR Department must engage in number
ofSource: J. Scarborough, "Comparing Chinese and Western Cultural Roots", Business Horizons
activities that would not be necessary in domestic environ, i.e., international
(November-December): pp. 15-24.
taxation issues, international relocation and orientation, administrative services of
expatriates, host government relations and language translation services etc.
Host government relations represent a phenomenal activity for IHRM particularly
in third world nations where work permits and other important certificates are easy
to acquire with comparison to developed nations.

Training and development issues of IHRM are more complex than domestic
HRM. It is difficult to plan a training programme and schedule for the workforce of
multinationals. People carry various attitudes and values for training and
development issues. In the present era, it is one of the major challenges before
IHRM.

A greater degree of involvement in employee’s personal lives is also an

important concern for IHRM. It needs to ensure that expatriate understand housing
arrangements, schooling facilities, health care, cost of living, compensation
package, local tax system etc. of the nation where they are going to take up an
global assignment. Here the involvement and onus of IHRM becomes much
broader than domestic HRM.

As the foreign operations mature, the emphasis put on various human

resource activities also gets change. As the need for PCNs and TCNs declines,
the more locally trained manpower appear on the scene. And resources
previously allocated for global staffing are transferred to the activities of local
staffing. Such change also poses challenge before IHRM to maintain balance
between mixed workforces in a MNC.

The human and financial consequences of failure in international arena are

more severe than domestic activities. The amount of risk involved in global
ventures is
International Human Resource Management: An Overview 29

much higher and complex than domestic employment. The direct and indirect
cost of maintaining global workforce is very high. And the long presence of global
terrorism also leaves impact over global staffing issues. After 11 Sep 2001, many
Notes
MNCs started allocating 1-2% of their budget for the safety and security of their
global workforce. People are indisposed to work in disturbed areas even though
many avenues are available.

Some major external factors such as the type of government, the state of
economy, political stability, cultural and ethical issues, industrial relation and
labour laws, unionism, working culture, food, taxation, health and safety issues,
amusement etc. of a nation is also an important concern for IHRM. The workforce
in developed nations is facilitated with more laurels and comforts than in
developing and third world nations. It also poses challenge before IRHM. Global
HR Manager must develop HR systems that are not only acceptable to the host
country but also compatible with company-wide systems being developed by his
or her HQ-based counterpart. The management of international Human Resources
has now assumed strategic importance in the achievement of multinational
organizational growth and excellence. As globalization advances and we move
into the information age, MNCs need to adapt to the changes in technology and
the changing issues in management of people. Some critical issues have clearly
emerged – planning, acquisition and development of human resources, responding
to the demands of the work place and, above all, evolving a strategy of dealing
with industrial conflict. As a management practice, it covers all the conventional
areas of personnel management and industrial relations, as well as the relatively
new areas such as communication, counseling, training and development, and
job enrichment. All the issues are related with management of the people in a
multinational context. The issues are to be resolved, unless the whole edifice of
international human resource management would be destroyed. The main issues
are:

 Managerial issues
 Socio-cultural issues
Today, competitive advantage is based on the successful application of
knowledge. Managing people, as an HRM function, has broadened, to include
managing organizational capabilities, relationships, learning and knowledge.
Economic reforms influence the human resource management processes. Good
examples can be cited to hold the discussion on the right way. Impact of
economic reforms in China and India can be taken. The more common mode of
operations in these two countries is international joint venture. Prior to reforms,
Chinese employees were classified into two groups – workers and cadres. Since
the reforms, the distinction between cadres and workers has gradually become
blurred, particularly in foreign-invested and privately owned enterprises. Established
in 1950s’ a centralized labour allocation system determined the staffing levels in
Chinese enterprise. Accompanying the centralized labour allocation was the
belief in lifelong employment. But by the end of 1996, a labour contract system
had become compulsory in both public and private sectors, including the
managerial level, thus revoking the long standing tradition of lifetime
employment. In theory, both workers and managers had the freedom to select
each other. Western recruiting methods are now commonly used. As enterprises
now have to match production to market demands and be responsible for their
own survival, they need to attract and retain competent and motivated
employees. Before reforms in China, performance appraisal in China for cadres
was mainly for promotion or transfer, with the main criteria being political loyalty
and seniority. Thus the appraisal method relied heavily on ‘superior rating
subordinate’, and lacked specific criteria and other performance measures
commonly used in western market economies. As part of economic reforms aimed
at breaking the iron rice bowl, a new scheme was proposed
30 International Human Resource Management

Notes based on socialist principle of distribution. New appraisal criteria focused on four
broad areas – moral integrity, competency, attitude, performance. Some new
methods have also been introduced requiring both qualitative and quantitative
measurement. The compensation system before the reforms was characterized by
egalitarianism at both enterprise and individual levels regardless of performance.
Reform of the compensation system began at the enterprise level. The state
regulated wage system has now been replaced by diversified wage packages with
more emphasis on enterprise profitability and individual performance. Remarkable
changes have also been brought in training and development. At the workers’
level, lack of education and training was widespread. The practice of double
certificate (educational and vocational) aims to achieve an outcome has now
been widely implemented and has enabled the workers to take the training course
of their choice and to be more flexible in job selection. In case of India, complex
cultural context is more advantageous to local managers. A study by As-Saber,
Dowling, and Leisch found that there was a clear performance for using the HCNs
in key positions by multinationals operating in India. Once hired, it is not easy to
dismiss employees under Indian labour law. The Industrial Disputes Act, 1947
provides strict rules for lay-offs and dismissals. Since the economic liberalization in
early 1990s, it has become more difficult for foreign multinationals to find and
retain high quality local staff, as the rapid rise in the level of foreign and local
investments in India has lead to shortage of skilled people. International business
operations place specific demands on effective training and development of PCN,
TCN, and HCN staff. The International Joint Venture (IJV) complicates this issue
due to potential conflicts in managerial styles and expectations.

Socio-cultural issue is another important issue area in IHRM. Ethics,

corporate social responsibility (CSR) and women employees are three important of
socio-cultural issue. In the domestic context, debates about CSR have focused on
whether a firm should adopt non-economic goals. Those who argue for a narrow
view of CSR believe that a firm’s only responsibility is to maximize profits for
shareholders within the law. Proponents of the broader view argue that firms
should adopt the role of a ‘good citizen’ and balance the interests of society.
When business is conducted across national and cultural borders, the debate on
CSR takes on added layers of complexity. In particular, perplexing questions about
the existence of universal ethical standards are raised. This is especially
problematic when multinationals operate in host countries with different standards
of business practice. The questions of ethical relativity and CSR arise not only in
the context of HCN, PCN employment practices but also in the central operations
and policies of multinationals. For ethical relativist, there are no universal or
international rights or wrongs: it all depends on a particular culture’s values and
beliefs. So, if the people of Indonesia tolerate the bribery of their public officials,
this is morally no better or worse than the people of Scandinavian countries who
refuse to accept bribe. For the ethical relativist, when in Rome, one should be like
a Roman. Unlike the relativist, the ethical absolutist believes that when in Rome,
one should do what one would do at home, regardless of what the Romans do.
This view of ethics gives primacy to one’s own cultural values. It must be noted
while some behaviours are wrong wherever they are practiced (e.g., bribery of
government officials), other behaviours may be tolerated in their cultural context.
In contrast to the ethical relativist, the ethical Universalist believes there are
fundamental principles of right or wrong, which transcend cultural boundaries,
and that multinationals must adhere to these fundamental principles. However,
unlike the absolutist, the Universalist is careful to distinguish between practices that
are simply culturally different and those that are morally wrong. The difficulty for
managers operating in diverse cultural environments is to identify moral norms,
which transcend cultural boundaries, and then, without compromising those
norms, recognize and respect diversity where it is morally appropriate to do so.
Ethical issues are also people issues and thus the issues
 International Human Resource Management: An Overview 31

many companies could achieve

raised above have direct implications for the HR function. It is recognized that the the growth they realised only
HR function is responsible for many of the activities that build a sense of corporate because of the foreign markets.
identity.
Foreign markets, in both
The issues that relate to gender are paralleled by those that arise because developed country and
of race, religion, disability, sexual preference, and other such personal developing country, provide
characteristics. In many countries it is illegal to make human resource choices on
the basis of these characteristics. In other countries, however these enormous growth opportunities
characteristics are especially important and may be the basis for making human for firms of the developing
resource decisions. Decisions associated with gender, race, religion, and so on country too. For example, in
often involve ethical considerations, as do many other international decisions. In recent years, a number of
Saudi Arab, women are not permitted to drive, to travel on an airplane alone. In
Indian pharmaceutical firms
Japan, women seldom work after marriage. In the US, women have attained a
certain degree of equality in the business environment but are seldom found in top have achieved a much faster
management positions. In China, women hold many of the same positions as men growth 9 of their foreign
but they are required to retire at an earlier age. International managers, whether they business than the domestic. The
are men or women, cannot avoid dealing with the question of the role of women in US market alone is expected to
business. They must often decide whether to employ women, when to employ
them, which ones to employ, where to employ them; then they must decide how to contribute as much as half of
manage the women employed. In addition, international managers need to the total sales of Ranbaxy
recognize that men and women may view roles differently, and differential shortly.
treatments can be interpreted in a variety of ways. International managers need to
pay particular attention to understanding the role of women in society and Internal Market Problems
business in each country where the do business.
Important reasons for going international are described below. Internal Market Problems
Domestic demand constraints
Profit Motive drive many companies towards
An important incentive for international business is the profit advantage. expanding the market beyond
International business could be more profitable than the domestic. There are the national border. The market
cases where more than 100 per cent of the total profit of the company is made in for a number of products tend
the foreign markets (in which case the domestic operation, obviously, is incurring to saturate or decline in the
loss). In 1995, 6 out of the 100 largest US MNCs made more than 100 per cent of advanced countries. This often
their profits from outside the U.S. This was 500 per cent in the case of Digital happens when the market
equipments. More than half of the total profits in respect of 40 of the 100 largest potential has been almost fully
U.S. MNCs was contributed by foreign markets. Even when international business tapped. In the United States, for
is less profitable than the domestic, it could increase the total profit. Further, in example, the stock of several
certain cases, international business can help increase the profitability of the consumer durables like cars,
domestic business. One of the important motivations for foreign investment is to TV’s, etc. exceed the total
reduce the cost of production (by taking advantage of the cheap labour, for number of households. It is
example). While in some cases, the whole manufacturing process of a product may estimated that in the first
be carried out in foreign locations, in some cases only certain stages of it are done quarter of the 21st century, the
abroad. Almost 20 per cent of the merchandise imported into the United States is population in some of the
manufactured by foreign branches of American companies. Several American advanced economies would
companies ship parts and components to overseas locations where the labour saturate or would grow very
intensive assembly operations are carried out and then the product is brought negligibly, and in some others
back home. there would be a decline. Such
demographic trends have very
Growth or Expansion Motive adverse effect on certain lines
An important reason for going international is to take advantage of the business of business. For example, the
opportunities in other countries. MNCs are getting increasingly interested in a fall in the birth rate implies
number of developing countries as the income and population are rapidly rising in contraction of market for
these countries. Of the one billion people estimated to be added to the world several baby products. Another
population between 1999 and 2014, only about three per cent will be in the high type of domestic market
income economies. As pointed out in the preceding and following sub-sections, constraint arises from the scale
economies. The technological advances have increased the size of the optimum production experience needed
scale of operation substantially in many industries making it necessary to have to invade the U.S. market. They
foreign market, in addition to the domestic market, to take advantage of the scale lacked sufficient resources to
economies. It is the thrust given to exports that enabled certain countries like develop the distribution and
South Korea to set up economic size plants. In the absence of foreign markets, software capabilities essential
domestic market constraint comes in the way of benefiting from the economies of to success in America. So the
scale in some industries. For example, for a certain chemical product, the Japanese have finally entered
minimum economic size of the plant is 35,000 tonnes but the demand for it in into joint ventures with U.S.
India by the end of the century is expected to be less than 10,000 tonnes. companies having distribution
Particularly when the domestic market is very small, internationalisation is the and software skills (Fujitsu with
only way to achieve significant growth. For example, Nestle derives only about two TRW, Hitachi with National
per cent of its total sales from its home market, Switzerland. Similarly, with only 8 Semiconductor). Infact, in
per cent of the total sales coming from the home market, Holland, many different Fujitsu’s case, it was an ironic
national subsidiaries of the Philips have contributed much larger share of total reversal of the counter.
revenues than the parent company. Domestic recession often provokes companies Competitive strategy by
to explore foreign markets. One of the factors which prompted the Hindustan expanding abroad to increase
Machine Tools Ltd. (HMT) to take up exports very seriously was the recession in its economies of scale for the
the home market in the late 1960s. The recession in the automobile industry in the fight with IBM back home. 11
early 1990s, similarly, encouraged several Indian auto component manufacturers Texas Instruments established
to explore or give a thrust to foreign markets. 10 Even when the domestic market semiconductor production
presents good growth prospects, foreign markets may be more attractive. For facilities in Japan “to prevent
example, a number of Indian pharmaceutical firms have been deriving major part Japanese manufacturers from
of their growth from abroad. The U.S. generics market, for instance, provides an their own markets.” Even after
enormous opportunity for Indian firms. The size of this market will expand much development work, the
substantially as a number of products will be going off-patent in the near future in Japanese producers could
the U.S. muster neither the R & D
resources nor the
Competitive forces
manufacturing capability to
Competition may become a driving force behind internationalisation. A protected compete at home or overseas
market does not normally motivate companies to seek business outside the home with acceptable product in
market. Until the liberalisation which started in July 1991, the Indian economy was sufficiently large quantities.
a highly protected market. Not only that the domestic producers were protected General Electric (U.S.), by
from foreign competition but also domestic competition was restricted by several licensing its advanced gas
policy induced entry barriers, operated by such measures as industrial licensing turbine technology to foreign
and the MRTP regulations. Being in a seller’s market, the Indian companies, in producers, who were potential
general, did not take the foreign market seriously. The economic liberalisation major competitors, created a
ushered in India since 1991, which has increased competition from foreign firms as captive market for its
well as from those within the country have, however, significantly changed the technology among such heavy
scene. Many Indian companies are now systematically planning to go international weights such as AEG (Germany),
in a big way. Many companies also take an offensive international competitive Hitachi (Japan), Nuovo Pignone
strategy by Way of counter-competition. The strategy of counter-competition is to (Italy), and Alsthom Atlantique
penetrate the home market of the potential foreign competitor so as to diminish (France), in their respective
its competitive strength and to protect the domestic market share from foreign countries. This move has
penetration. “Effective counter-competition has a destabilising impact on the eliminated competition for the
foreign company’s cash flows, product related competitiveness and decision huge U.8 market from these
making about integration. Direct market penetration can drain vital cash flows sources. Mr. B.K. Khaitan, MD,
from the foreign company’s domestic operations. This drain can result in lost Wires and Fabriks, had
opportunities, reduced income, and limited production, imparing the competitors disclosed that one of the
ability to make overseas thrusts.” Thus, IBM moved early to establish a position of strategic considerations behind
strength in the Japanese mainframe computer industry before two key the plan to substantially
competitors, Fujitsu and Hitachi, could gain dominance. Holding almost 25 per increase the company’s exports
cent of the market, IBM denied its Japanese competitors vital cash flow and was that “instead of waiting for
the global onslaught into India, we will fight them in their playing field.” Although Most industries
counter competitive moves by Indian companies are not very conspicuous, there and countries
are to
are indeed several Indian companies who look upon foreign business as a means,
experience a
inter alia, to improve their competitiveness in the domestic market. widening talent
gap, notably for
Government Policies and Regulations
highly skilled
Government policies and regulations may also motivate internationalisation. There positions and for
next generation
are both positive and negative factors which could cause internationalisation. of mid and
Many governments offer a number of incentives and other positive support to senior leaders.
domestic companies to export and to invest in foreign countries. Similarly several  Working
countries give encourage import development and foreign investment. virtually: Working
Sometimes, as was the case in India, companies may be obliged to earn foreign virtually across
functions and
exchange to finance their imports and to meet certain other foreign exchange
geographies will
requirements like payment of royalty, dividend, etc. Further, in India, permission intensify, with
to enter certain industries by the large companies and foreign companies was implications for
intercultural
subject to specific export obligation. Some companies also move to foreign
communication,
countries because of certain regulations, like the environmental laws in advanced business ethics
countries. Government policies which limit the scope of business in the home and organisational
effectiveness.
country may also provoke companies to move to other countries. Here is an
interesting case: In the early seventies, having failed to make any headway within Localising
India, the only alternative left for the 12 Birla was to set up industries in other management of
overseas
countries and it put up several successful companies in all the ASEAN countries.
operations is the
“This was surely a paradox. The same government which refused us permission to key, but a global
set up manufacturing capacities within the country allowed us to set up industries outlook is just as
outside the country for the same products for which it has said ‘no’ in India. Thus, important as
we set up a viscose staple fibre plant in Thailand, and started exporting fibre back local knowledge.
Businesses
to India.” According to one study, “the evidence suggests that one of the most
need to find new
important motivations behind foreign direct investment by Indian firms has been ways to connect
the desire to escape the constraining effects of Government of India’s policy. It people to each
appears that a number of Indian locally domiciled foreign collaboration industries, other and to
those involved in manufacturing at least, go overseas to avoid a policy information,
both internally
environment that restricts their domestic growth and undermines their
and externally.
competitiveness. To the extent that foreign direct investment from India takes The expectation
place for such negative reasons, the phenomenon may be regarded as disguised of having an
form of capital flight from India.” With recent changes in the government of India’s “always-
economic policy, the situation, however, has changed. Many Indian companies are available”
entering into international market or are expanding their international operations employee varies
around the
because of positive reasons. world.

13.1 Global HRM Trends and Future  Tentative global

employee
Challenges engagement:
Companies that
have implemented
The human resource functions in a global arena follows some trends and multiple layoffs
challenges as discussed below: have eroded a
sense of security
 The importance of globalisation and integrating markets: Companies
in the global work
will become larger and more global in the coming years, handling
force. There is a
operations in more countries than they do today. We’re living in an
disconnection
increasingly borderless world.
between what
 Talent management: Finding and retaining quality talent continues to be companies
essential to business sustainability. Finding and retaining quality talent currently have to
continues to be essential to business sustainability, though its importance offer employees
in relation to other challenges differs by location. There are more and what
contingent workers, and the rationale behind work force investment is employees really
changing and moving in multiple directions. value. Retaining
 valued talent is more important, but the drivers to retain that talent are
different depending on the type of market (growth opportunity is paramount
in growth markets; new or challenging responsibilities is paramount in
mature markets).

The gap in creative leadership, executing for speed, and managing

‘collective intelligence’ must be addressed. Employee engagement
has suffered; companies are now trying to restore pride and trust.
 The economic crisis and fewer existing business opportunities: The
crisis and fewer opportunities create a high demand on the global HR
function to demonstrate greater adaptability.

Human Resource (HR) will be an important link between corporate

headquarters and overseas operations. HR is conducting too many
initiatives, with mediocre outcomes. Companies need to reform
their HR function and boost resources devoted to HR.
 Economic uncertainties: They fundamentally change motivators that
attract and retain employees. There is an unbridged disparity between
what companies have to offer employees and what employees really
value.
Notes

LOVELY PROFESSIONAL UNIVERSITY 235

  Human capital protectionism: It may continue to increase in many countries
in non-tariff, nationalistic forms.

 Global mobility of high-value workers: It continues as multinational companies restrict

new hires and relocate talented employees from within their existing work force.
 Companies in emerging markets: Companies that originate in emerging economies
will continue to succeed in the global marketplace.
 Increased demand for HR metrics: It may bring about a widely accepted set of analytic
measures and methods (global standards) to describe predict and evaluate the quality
and impact of HR practices and the productivity of the work force. However, globalisation
is also driving impetus toward the use of more metrics with greater cultural sensitivity.

Implications for HRM Practices

Diversity of various types in a global company suggests that HRM practices have to be
tailor-made to suit the local conditions. Such practices can be seen in the context of different HRM
functions.

Recruitment and Selection

A global company has the following alternative approaches to recruitment and selection of
employees:

a. Ethnocentric-all key positions, in headquarters as well as subsidiaries, are

staffed by parent-country nationals.

b. Polycentric-key positions in subsidiaries staffed by host-country nationals

and those in headquarters staffed by parent-country nationals.

c. Regiocentric-key positions staffed by host-country nationals within

particular geographical regions (such as continent-wise).
 d. Geocentric-key positions in headquarters as well as subsidiaries staffed by
people based on merit, irrespective of their nationality.

Different MNCs adopt different approaches for recruitment. For example, a survey of recruitment
practices adopted by MNCs reveals that 50 per cent MNCs believe in geocentric approach while 35 per
cent MNCs believe in ethnocentric approach and key functionaries from parent country national are put
on foreign assignments for two-three years.

While selecting personnel, MNCs generally place emphasis on technical skills. Not much
emphasis is placed on skills for cultural adaptability. With the result, expatriate failure rate is high. In
order to overcome this problem, many MNCs have adopted the practice of recruiting fresh graduates
from host countries and providing training in parent country.

Performance Management

Performance management, that is, assessment of employee performance, discussing its results
with employees, and suggesting and working out way for improvement in performance, is based on
the practices adopted by MNCs in this respect for parent-country nationals. However, this has posed a
serious limitation in the American MNCs which adopt, generally, management by objectives (MBO).

MBO works in an environment which is open and provides platform for discussion between
superior and subordinate on equal footing. In countries where people are highly oriented towards
authority, any open discussion with superior by subordinate is treated as insubordination, and MBO
system does not work. Therefore, the alternatives suggested are recognising and formally
incorporating the difficulty level of operating in different countries, relying the foreign on-site manager
to consult the home-site manager before finalising assessment, and involving the expatriate in deciding
on performance criteria and making them more appropriate to the expatriate’s position and
circumstances.

Training and Development

MNCs provide pre-departure training to expatriates. However, in many cases, such a training is
superficial without really addressing the issues uppermost in the minds of expatriates and their
families. The depth and breadth of training can vary from a simple information-giving approach
(films/books) to effective approach (culture and language training) and impression approach (field
experience) depending on the length of stay and nature of the position.
 Regarding training and development, it is suggested that MNCs develop a global
pool of international managers and rotate them across foreign locations to facilitate transfer of
best HRM practices and mentoring of future global managers. Emphasis should be placed on
making managers sensitive to cultural differences and adept at managing them.

Compensation Management

There are two commonly used approaches in international compensation systems –

going-rate approach in which compensation is tied to host-country norms and the balance-
sheet approach in which compensation is tied to home-country norms. In both approaches,
additional expenses in the form of housing and additional taxes are reimbursed. Both the
approaches have their own merits and limitations.

Industrial Relations

Industrial relations depend on the history, legal framework, power relations, and
ideologies of management and trade unions in each country. Therefore, MNCs have to adopt
specific industrial relations strategies to suit local conditions. However, MNCs face pressure
for standardisation in terms of productivity at least within a region if not internationally.
Therefore, they have to strike a balance between industrial relations strategies to suit local
conditions and standardisation. Some MNCs lobby with local governments to have better
industrial relations.