UNIT - 1

MORGAN’S MODEL TO DEFINE IHRM

According to P.V. Morgan: IHRM is the interplay among 3 dimensions:

 HR Activities
 Types of employees
 Types of Countries

 Broad activities of IHRM – procurement, allocation and utilization of human resources

cover all the six activities of domestics HRM i.e., HR planning, Employees Hiring,
Training and Development, Remuneration, Performance Management and Industrial
Relations.
 The three national or country categories involved in IHRM activities are:
i. The host country where subsidiary may be located
 ii. The home country where the company has its headquarters
iii. Other countries that may be sources of labour or finance.
 The three types of employees of an international business are – Parent Country Nationals
(PCNs), Host Country Nationals (HCNs) and Third Country Nationals (TCNs). For example,
IBM which employs Australian citizens in its Australian operations, after sends US citizens
to Asia Pacific countries on assignment, and may send some of its Singaporean employees to
its Japanese operations.
 DEFINITIONS OF IHRM

PCN (Parent-country nationals) are employees whose nationality is the same as that of the
firm headquarters — for example, a German employee of a German company who is working at
a Chinese subsidiary.
HCN (Host-country nationals) are employees who have the same nationality as the local
subsidiary. This could be a Chinese employee working at the Chinese subsidiary of the German
company

TCN (Third-country nationals) are employees whose nationality is different from that of either
the headquarters or the subsidiary office. In the above scenario, this might mean an Indian
employee working at the Chinese office of the German company.

Expatriate

An expatriate is an individual living in a country other than his or her country of citizenship,
often temporarily and for work reasons. An expatriate can also be an individual who has
relinquished citizenship in their home country to become a citizen of another.

An expatriate is a migrant worker who is a professional or skilled worker in his or her profession.
The worker takes a position outside his/her home country, either independently or as a work
assignment scheduled by the employer which can be a company, university, government, or non-
governmental organization. If an employer sends a person from his job in Silicon Valley office to
work for an extended period in its Toronto office, he would be considered an expatriate or
"expat" after he arrives in Toronto. Expats usually earn more than they would at home, and more
than local employees. In addition to salary, businesses sometimes give their expatriate employees
benefits such as relocation assistance and housing allowance. Living as an expatriate can be
exciting and present a great opportunity for career advancement and global business exposure,
but it can also be an emotionally difficult transition that involves separation from friends and
family, while adjusting to an unfamiliar culture and work environment. Hence, the reason behind
the higher compensation offered to these migrant workers.

Repatriate

Repatriate is an employee who is deported from the country where he is working to his own
home country.
 LINKING HR TO INTERNATIONAL EXPANSION STRATEGIES

In today‘s global environment when expanding a business in to another country IHRM

would play a handle new key role. There can be identified very clear 6 differences between
domestic and international HRM. They are more HR activities, need for broader perspectives, the
more involve with employees personal life, risk exposure, broader external influence, changes in
emphasis as work force mix of expatriates and locals.

IHRM is concern with staffing policies, recruitment and selection, remuneration,

motivation, training and development, performance appraisals, promotion, retirement,
redundancy and lay off, industrial relations and foreign assignments. Expatriates are the
employees who is working and temporarily residing in a foreign country. They could be PCNs,
TCNs or HCNs. Due to the development of technologies such as telecommunication, satellite
and computer technology and lower cost in going business globally has made the IHRM much
more important and easy to manage when compared to the last to few decades. For any
organizations that have global operations all around the world IHRM would play a Key factor for
the company success.

1. Cultural Context

When an organization do business internationally, understanding the cultural differences

among the countries is very essential to be successful in the long run. This is because operations
starting in another country, if there are huge cultural differences among the parent and the
subsidiary companies would face varies implications. According to the Hofsted‘s there are 4
cultural damnations.

Power distance: This is the extent to which power is distributed unequally among the employees
in between the higher positions and the lower positions. Eg – India is a high power distance
culture (even have a cast system) and USA is a lower power distance culture.

Individualism vs collectivisms: In a individualistic country people would priorities them self

(USA) whereas collectivism country people would priorities group needs.

Uncertainty avoidance: People would try to minimize risk they face in a situation (avoiding
paralysis through analysis) usually countries with long history and traditions have a high
uncertainty avoidance. Countries such as USA well come higher risks.

Masculinity/femininity: Masculine- tough value dominant Eg; success, money, satiates,

competition. Feminine- tender values dominant such as personal relationships care for others,
quality of life etc. When we take Sri Lanka for a example I think we have feminine culture even
though have many masculinity futures. The best example for this is during the tsunami situation
whole county get together to help the tsunami victims within ours.

Cross-cultural communication: Similarly, among various countries cross-cultural

communication is very necessary so that they can understand each other‘s through religion,
culture, art, literature, foreign policies, fiscal policies, etc. such type of bridges of understanding
will help to lessen and minimize the gap between two culture.

2. Organisational Context

There are many activities affecting the IHRM in an organizational context. Industrial
relations, health and safety, management style, authority structure, organizational structure,
leader ship style and etc. And organization could implement a different structures such as global
product division, global area division and global matrix structure depends on the situation,
subsidiary age and size structure adopted. Controlling of subsidiary would have both formal and
informal control systems. Formal methods would be structure, reporting systems, budget and
targets whereas informal methods would be co-operate culture and personal relationships.

we know some of the transferable HRM policies such as physical layouts, use of
technologies, holiday entitlements, quality circles depending on the culture, motivation and
leadership style, performance appraisals and etc. company expatriates would have to perform the
key activities when implementing the procedures in subsidiary an at the same time adopt the
suitable local norms, standards and value in to the system to make it more localize the
operations. Improving the performance, implementation of corporate culture, solve technical
problems, handling of sensitive information, reduces risk, improve trust and team working skills
are some of the important functions that expatriates should perform during a foreign assignment.

3. Expatriates Recruitment

When starting a subsidiary in a foreign country, there are many reasons why expatriates
are needed. Teaching a new process, setting up a new branch, facilitating the knowledge transfer
between parent and the subsidiary, helping branch to implement matrix integration is some of the
purposes. This would also depend on the relationship between parent and subsidiary, amount of
investment, other host country environment factors. Depending on the host culture, size and the
maturity of firm, relative importance of the subsidiary, moral and ethics balancing of
standardization and localization of HRM could be done. Localization would be the recruitments,
holidays, leave procedures and etc. according to Huo – ―the best IHRM practice ought to be the
ones best adapted to culture and national environment‖. Developing staff members investing in
human capital, career development, good working conditions and good management practice
could help the organization to retain and attract skilled and qualified labour force in to the
organizations. In Sri Lanka Mas holdings is a very good example for a organization which is
practicing this method.

4. International Staffing

There are many ways of staffing international operations. They are ethnocentric,
polycentric, geocentric and regiocentric. Each of this method has its own advantages and
disadvantages. Most of the companies use ethnocentric approach at the initial stage and move to
polycentric approach after some time. Eg;- after operating Sri Lanka for many years Coca Cola
has appointed a Sri Lankan as a country head for the first time. Organizations use expatriate for
international assignment as position filling, management and development and for organizational
development. They could be assigned for varies time periods and would have many roles to play
as expatriate such as agent of control/socialization, network builder, boundary spanner, language
node, transfer of knowledge etc.

Non-expatriates are people who travel internationally, yet no conceder as expatriate as

they do not relocate to another county. Examples for non-expatriates are auditors, inspection
department, regional managers etc. even though it‘s a glimmers life on first site non- expatriates
would have high level of stress because of family working arrangements, health concern and host
culture issues. Even expatriates would face lot of difficulties such as spouse and family
problems, lack of cultural sensitivity, reluctant to change and adopt, them us mentality, home
country mentality and etc. There for organizations must use most appropriate method when
selecting a person for an expatriate job.

5. Expatriate Failure

When recruiting an expatriate for an international assignment organizations has to be

extremely concern. This is because expatriate failure is extremely costly for an organization.
Career advancements financial incentives, interest in countries, interest to travel are the factors
that motivate the expatriates. For expatriate to be successful in a foreign assignment they have to
have the job knowledge and motivation, job related skills, be flexible and adoptable, helpful
family situations and extra cultural openness. Expatriate failure could be defined as premature
return or under performance during the a foreign assignment. There could be varies reasons for
early return of a expatriate but direct cost of the failure is extremely high for the organization.
Eg- salary and training cost, airfares, relocation expenses, exchange rates, replacing the failed
manager etc. indirect costs would be the damagers to the relationship with stake holders, family
relationships, and negative effects on the local staff members.

There are four phases in cultural adjustments which expatriate has to go through in a foreign
assignment. They are,

Tourist – everything is new and enjoyable

Crisis/ cultural shock – see differences and negative side off the new culture

Pulling up

Adjustment - There is a high possibility of expatriate to exit during the cultural shock period.
There for in this each stage organizations would have to take many steps to ease the situation.
Eg- food, customs, cultural values (seniority), home sickness etc.

6. International Training and Development

Training and development of expatriates is essential for the success of a intentional

assignment. This is because expatriates are sending to subsidiaries to show how systems and
procedures work, ensure adoption and motivation of performance. There for cultural differences
and business out comes attitudes and how it affects the behavior, facts about the target country,
skill building and language is some of the areas that organization should look in to. Effective
pre-departure training should include cultural awareness programmes, preliminary visits,
language training, non-traditional assignments and training etc. future more practical assistance
for relocation, find accommodation and schooling, future language training, would also
contribute to adaptation of expatriates and his family members to settle down. Many methods
could be used to train the expatriates and many examples some of them was showing videos,
giving case studies, role play and anointing an experience mentor.
 7. International Performance Management

Multinational organizations would face lots of performance management issues and

expatriate re-entering career issues. Performance management is also a way of controlling the
subsidiaries. It also contributes shape the organizational culture. HCNs and non-expatriate
performance would have to be evaluated separately. Appraisal of host country nationals could be
done with standardizes company evaluation form. But customization of the form according to the
local staff should be done to get the maximum benefits to the all parties. Performance evaluation
criteria would be done on hard goals, soft goals and contextual goals. When evaluating the
performance of a non- expatriate stress associated with constant air travel, family relationship
issues should also be considered. Expatriate performance would be evaluated on how well he/she
achieve organizational targets, relationship and network build up with key parties,
implementation of cooperate culture in the organization and etc. evaluation results would also
have a impact from who is doing the appraisal, frequency, timeliness and use of standards and
customization of the appraisal form.

Re-entry of expatriate after completion of foreign assignment would also have to be

given consideration. Preparation, physical relocation, transactional readjustments are the phases
which have to go through again. To retain the staff in the organization and repatriation pre-
departure career discussions, naming a contact person, succession planning and etc could be
done.

8. International Compensation

For a multinational organization to be successful they should have a good compensation

package in place for their employees. This is because different countries different currencies,
labour laws and customs are in place. There for expatriate pay should be determine according to
cost of living, hardship, currency fluctuations, health care, housing, taxation and education
expense of children. To determine the compensation package awarded to the expatriates going
rate approach and balance sheet approach can be used. Even though both approaches have its
advantages and disadvantages the balance sheet approach is the most commonly used system in
multinationals. Balance sheet approach would consider about the goods and services cost,
housing cost, income tax and reserves when determining the benefit package.

ISSUES AND CHALLENGES IN IHRM

International human resource management is the process of managing people across

international boundaries by multinational companies. It involves the worldwide management of
people, not just the management of expatriates. Companies that function globally comprise
international and multinational firms. International firms are those where operations take place in
subsidiaries overseas that rely on the business expertise or manufacturing capacity of the parent
company; they may be highly centralized with tight controls. Multinational firms are ones in
which a number of businesses in different countries are managed as a whole from the centre; the
degree of autonomy they have will vary. The main contrast between national and global HR
practice is the need to see the bigger picture: ‗The difference is the higher complexity and the
need for sensitivity to different cultures and different business environments.‘ He stated that
understanding the local context is key and an international HR person needs to be asking
questions such as: What is the business environment here? What is the role of the trade unions?
What is the local labour law? Are these people different? Are their motivation patterns different?
There are a number of issues that specifically affect the practice of international as distinct
from domestic HRM. These are the impact of globalization, the influence of environmental and
cultural differences, the extent to which HRM policy and practice should vary in different
countries (convergence or divergence), and the approaches used to employ and manage
expatriates.
1. Globalization
Globalization is the process of international economic integration in worldwide markets. It
involves the development of single international markets for goods or services accompanied by
an accelerated growth in world trade. Any company that has economic interests or activities
extending across a number of international boundaries is a global company. This involves a
number of issues not present when the activities of the firm are confined to one country.
Globalization requires organizations to move people, ideas, products and information around the
world to meet local needs.
 The main issue for multinational companies is the need to manage the challenges of global
efficiency and multinational flexibility – ‗the ability of an organization to manage the risks and
exploit the opportunities that arise from the diversity and volatility of the global environment‘.
Research conducted over a number of years by Brewster and Sparrow (2007) has shown that the
nature of international human resource management is changing fast. Among some of the larger
international organizations, these changes have created a completely different approach to
international human resource management. Whereas international human resource management
has tended to operate in the same way as local HRM but on a wider scale, globalized HRM
exploits the new technologies available to manage all the company‘s staff around the world in
the same way that it has traditionally managed staff in the home country.
2. Environmental Differences
Environmental differences between countries have to be taken into account in managing
globally. As described by Gerhart and Fang (2005), these include ‗differences in the centrality of
markets, institutions, regulations, collective bargaining and labour-force characteristics‘. For
example: in Western Europe, collective bargaining coverage is much higher than in countries
like the United States, Canada and Japan. Works councils are mandated by law in Western
European countries like Germany, but not in Japan or the United States. In China, Eastern
Europe and Mexico, labour costs are significantly lower than in Western Europe, Japan and the
United States.
3. Cultural differences
Cultural differences must also be taken into account. Hiltrop (1995) noted the following HR
areas that may be affected by national culture:
• Decisions of what makes an effective manager;
• Giving face-to-face feedback;
• Readiness to accept international assignments;
• Pay systems and different concepts of social justice;
• Approaches to organizational structuring and strategic dynamics.
The significance of cultural differences was the influential message delivered by Hofstede.
He defined culture as ‗the collective mental programming of people in an environment‘, referred
to cultural values as broad tendencies ‗to prefer certain states of affairs over others‘, and
described organizations as ‗culture-bound‘. He identified four national cultural dimensions:
uncertainty avoidance, masculinity/femininity, power distance and individualism/collectivism.
One of the conclusions Hofstede reached was that the cultural values within a nation are
substantially more similar than the values of individuals from different nations.
4. Convergence and divergence
According to Brewster (2002) the effectiveness of global HRM depends on ‗the ability to
judge the extent to which an organization should implement similar practices across the world
(convergence) or adapt them to suit local conditions (divergence)‘. The dilemma facing all
multinational corporations is that of achieving a balance between international consistency and
local autonomy. They have to decide on the extent to which their HR policies should either
‗converge‘ worldwide to be basically the same in each location, or ‗diverge‘ to be differentiated
in response to local requirements. There is a natural tendency for managerial traditions in the
parent company to shape the nature of key decisions, but there are strong arguments for giving as
much local autonomy as possible in order to ensure that local requirements are sufficiently taken
into account.
5. Global HR policies and practices
The past researches identified three processes that constitute global HRM: talent
management/employee branding, international assignments management, and managing an
international workforce. They found that organizations such as Rolls Royce had set up centres of
excellence operating on a global basis. They observed that global HR professionals are acting as
the guardians of culture, operating global values and systems. Global HR policies and practices
were widespread in the areas of maintaining global performance standards, the use of common
evaluation processes, common approaches to rewards, the development of senior managers, the
application of competency frameworks and the use of common performance management
criteria. Generally the research has indicated that while global HR policies in such areas as talent
management, performance management and reward may be developed, communicated and
supported by centres of excellence, often through global networking, a fair degree of freedom
has frequently been allowed to local management to adopt their own practices in accordance with
the local context as long as in principle these are consistent with global policies.
6. Managing expatriates
Expatriates are people working overseas on long- or short-term contracts who can be nationals of
the parent company or ‗third country nationals‘ (TCNs) – nationals of countries other than the
parent company who work abroad in subsidiaries of that company. The management of
expatriates is a major factor determining success or failure in an international business.
Expatriates are expensive; they can cost three or four times as much as the employment of the
same individual at home. They can be difficult to manage because of the problems associated
with adapting to and working in unfamiliar environments, concerns about their development and
careers, difficulties encountered when they re-enter their parent company after an overseas
assignment, and how they should be remunerated.
The above mentioned are some of the challenges and issues of IHRM.
ORGANISATIONAL DYNAMICS AND IHRM
Organizational dynamics is defined as the process of continuously strengthening
resources and enhancing employee performances. It can also be described as how an
organization manages and promotes organizational learning, better business practices
and strategic management.
There are four fundamental business activities that contribute to an organization‘s
dynamics.
First, planning requires management to structurally define departments and divisions.
Managers set measurable goals that will define future actions and decisions. Organizational
planning may involve inventory control, production scheduling, revenue forecasts and expense
management. Managers use these plans as the actionable foundation for all their regular duties.
Second, goal execution involves implementing, evaluating and following up with
expected deliverables. In order to accomplish this, managers must allocate resources and
responsibilities to employees based on skills and schedules.
Third, leadership involves hands-on, exemplary oversight that drives innovation,
knowledge and performance.
Fourth, resource control refers to how executives and management establish systems that
gather data which is used to determine if goals are met.
Every company will have managers who are responsible to monitor and control certain
business functions. At the heart of an organization‘s dynamics lies human resources management
that is concerned about optimizing employee performances. HR managers are trained to improve
individual and organizational effectiveness through applying relevant behavioral sciences and
HR management principles. Managers drastically impact a company‘s dynamics and overall
performance. Successful managers will ensure quality through careful planning that addresses
risk, communications and progress management. They also create open forums that empower
vendors, employees and shareholders to share information. Managers directly impact the
financial health through financial monitoring and integrated cost controls.

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