International Human Resource Management

International Human Resource Management Meaning

When human resource management assumes a global perspective, it becomes cross-cultural or international human resource management. International Human Resource Management (IHRM) is about the worldwide management of human resources. It explores how international organisations manage their human resources across these different national contexts. International human resources management enables the firm, the multinational companies (MNCs), to be successful globally. It is the process of allocating, sourcing, and utilising human resources in a multinational organisation.

What is International Human Resource Management?

For many organisations, IHRM is the most important factor of success. Without IHRM, efficient and effective management is not possible. International Human Resource Management (IHRM) requires a broader perspective, even for the most common HR activities. Its focus lies on addressing the human resource challenges encountered by multinational corporations in their foreign subsidiaries or, more comprehensively, on examining the emerging HR concerns linked to the diverse phases of the internationalization journey. IHRM is an important aspect of managing human resources in a global context. 

International human resource management definition

According to Tapomay Deb, “International human resource management may be defined as a strategic process of managing a global and diverse pool of talented people in such a way as to achieve aims and objectives of the organisation both at parent and subsidiary levels successfully, follow ethical practices on human and business issues and be adaptable to local cultural norms and other human needs and aspirations”.

Hugh Scullion states that “IHRM has been defined as the HRM issues and problems arising from the internationalisation of business; and the HRM strategies, policies and practices which firms pursue in response to the internationalisation process”.

According to Morgan, “International human resource management is the interplay among these three dimensions-human resource activities, types of employees, and countries of operation”.

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Nature of International Human Resource Management

The nature of international human resource management is given as follows:

1) It requires the development of a long-term HR plan to make sure of an effective alignment of the HR strategies with the corporate objectives.

2) It requires the development of a diversified range of skills for employees, especially for those who need to work beyond national boundaries.

3) It involves employing the right people in the correct positions, irrespective of geographic location.

4) It requires the creation of centralised reporting relationships around the world for faster information sharing.

5) It requires the introduction of formal and informal methods to integrate the different parts of the international business effectively.

6) It necessitates the determination of compensation for host, home, and third-country nationals based on country-specific factors.

7) It is necessary to understand the cultural dimensions of host nations that influence HR operations.

8) It is essential to maintain good communication among all the parts and people of the organisation at the global level.

9) The perceived value of HR activities generally varies across the different locations of international companies.

10) It requires the development of a well-organised evaluation system to assess the performance of employees across different locations and nations.

Reasons for Emergence of International Human Resource Management

The main reasons for the rapid growth of interest in the field of international human resource management are as follows:

1) Need for Effective Management

The effectiveness of human resources management and the excellence of overall management are pivotal factors that dictate success or failure in international business. The prevailing consensus is that human resources provide companies with a competitive advantage in the contemporary International Trading Environment.

2) Need for International Managers

A shortage of international managers now stands against the implementation of global strategies. This implies an increasing need for international managers with distinctive competencies to manage culturally diverse workforces in MNCs.

3) Rapid Growth of Internationalisation and Global Competition

The rapid growth of internationalisation and global competition has increased the number and importance of MNCs in recent years, resulting in the increased mobility of human resources.

4) Developing Different Organisational Cultures

HR strategy now plays a more significant role in implementation and control in the international firm, which requires developing different organisational cultures. This has significantly enhanced the role of IHRM.

5) Strategic Alliances, Cross-Border Mergers and Acquisitions are Increasing

The increasing number of strategic alliances and cross-border merger and acquisition has further increased the strategic importance of IHRM as global business increasingly shifts from formal, developed, and matured markets to emerging, informal, and culturally foreign markets.

6) Expatriation in International Firms

The growing importance of expatriation in international firms, i.e., the practice of developing host-country managers or third-country managers through developmental transfers to corporate headquarters has also enhanced the role of IHRM. Such developmental assignments for local managers provide them with the opportunity to cultivate the essential skills and knowledge required to effectively oversee a global business. The performance of expatriates is essential for achieving success, or else the indirect costs of poor performance of expatriates may affect the market share and harm foreign customer relations.

7) Knowledge Management

Similarly, knowledge management is also an important source of competitive advantage for multinational firms. Knowledge management requires an organisation’s ability to create, transfer and integrate knowledge across borders. IHRM, in this context, plays a central role.

8) Traditional Hierarchical Organisational Structures are Becoming Redundant

Traditional hierarchical organisational structures are now becoming redundant and MNCs are going for a network of interpersonal relationships and horizontal communication channels. In network organisations, HR plays a pivotal role.

9) Learning, Knowledge-Acquisition and Adaptation

Learning, knowledge acquisition and adaptation have been identified as important potential sources of competitive advantage for MNCs. The role of International Human Resource Management (IHRM) has been further strengthened to meet the key strategic challenge of objectives.

Factors Influencing International Human Resource Management

Major factors that influence international human resource management are as follows:

Factors Influencing International Human Resource Management

1) Economic Factors

Like cultural differences, there are economic differences among nations/countries. Differences in economic conditions or systems give rise to disparities in human resources (HR) practices across countries. For example, in the case of a country with free enterprise systems, the need for efficiency tends to favour HR practices and policies that encourage productivity, efficient workers, etc. On the other side, when one moves along the scale toward more socialist systems, HR practices tend to shift toward different directions like preventing unemployment. It can do so, even at the expense of sacrificing efficiency.

2) Cultural Factors

The most critical factor influencing IHRM is the culture of the country where a facility is located. Culture is a society’s set of assumptions, values, and rules that shape social interactions within a society.  A country’s culture can be defined as the set of values, symbols, beliefs, and languages that guide group behaviour within that culture. Culture distinguishes one organisation from another. Similarly, at the macro level too, wide-ranging cultural differences exist across the nations/countries. For example, the Western culture widely varies from the Eastern one. Just to quote, the incentive plans in Asia (Japan) tend to focus on the workgroup, while in the West the more usual prescription is still to focus on individual worker incentives.

3) Political-Legal Factors

Legal factors also vary from country to country. The rules and regulations imposed by a country’s legal system can have a strong effect on HRM. The political-legal system often determines the prerequisites for various HRM practices, such as recruitment, training, compensation, firing, and layoffs. In large part, the legal system is a product of the culture in which it operates. Thus, the laws of a particular nation often reflect societal norms about what comprises legitimate behaviours.

For example, in the United States, one has strong beliefs regarding the equity of pay systems- thus the Fair Labour Standards Act, among other laws and regulations, sets the minimum wage for a variety of jobs. They have regulations that dictate much of the process for negotiation between unions and management. These regulations have a profound impact on how human resources are managed in the United States.

Codetermination is a prevailing principle in Germany and several other countries. Codetermination means employees have the legal entitlement to actively participate in the formulation of company policies. Workers elect their representatives to the supervisory board of the employer, and there is a vice president for labour at the top management level. In the United States, HRM policies on most matters such as wages and benefits are set by the employer, or by the employer in negotiations with its labour unions. The codetermination laws, including the Works Constitution Act, largely determine the HRM policies of numerous German companies.

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