International Human Resource Management(IHRM)
The purpose of international human resource management is to get the competitive advantage by hiring and improving the skills, efficiency, and productivity through the process of procuring, allocating, assigning, providing training & development, performance appraisal, compensating for the effective utilization of human resources in the global environment. Globalization and the growth of information technology and the advancements in modern business make the world to create and adopt new methods and concepts of human resource management in the form of international human resource management (IHRM).
The ultimate goal of any organization is to satisfy the needs of the customers and to get the position of the market leader; effective utilization of human resources at the international level helps in fulfilling the needs of the customers with international standards. In the globalized markets knowing the needs, competing, and getting success are major challenges, international human resource management can create a scope to reach the top most position in the market with the effective utilization of human resources for the success of the organizations in the multinational environments.
Internationalization of business can bring changes in organizational strategies, organizational structure, human resource activities and approaches. P.V. Morgan explained the three-dimensional model of IHRM, it includes human resource activities, types of employees, and countries.
International human resource activities:
International human resource activities include major operative human resource functions such as procurement, which involves human resource planning and induction. The second major activity is allocation; it involves the plan for using human resources among various subsidiaries or projects. Effective utilization of human resources is the third human resource activity and helps in maximizing the skills and efficiency of the human resources and productivity.
The activities of international human resource activities cover all the major activities like HR planning, recruitment, selection, orientation, placement, training & development, remuneration, and performance evaluation.
Categorization of countries in the concept of IHRM
In the concept international human resource management, the countries having headquarters and subsidiaries are categorized as follows.
- Home country: Where the headquarters is located
- Host country: Where the subsidiary is located
- Third/other countries: These are the sources of finance and human resources
Types of employees in IHRM
The name international human resource management itself indicates that human resources are recruited from various countries. Here nationals of various countries contribute their skills and efficiently for the growth of the organization. They are mainly three types, parent or home country nationals, host country nationals, and third country nationals. These three types are differentiated on the basis of citizens of headquarters of the company, citizens of the subsidiaries of the company, and citizens of various countries.
Home country or Parent Country Nationals (PCNs)
Home country nationals are the employees of the organization and these are the citizens of the country where the headquarter is located.
Host Country Nationals (HCNs)
Host country nationals are the citizens of the country where the subsidiary is located or when any organization recruits the nationals of the country where the subsidiary is located.
Third-country Nationals (TCNs)
Third country nationals are the citizens of the other countries, and they are neither the citizens of the country where the headquarters is located nor the citizens of the country where the subsidiary located.
Depending on the recruitment of key managerial positions for multinational companies, different approaches are explained.
According to ethnocentric approach, organizations believe that the employees of home country nationals can perform better to fulfill the organization’s mission, vision, and objectives, so all the key managerial positions of the subsidiary are filled with expatriates from the home country.
Advantages of ethnocentric Approach
- Organization’s culture can be easily adapted to all the subsidiaries with the help of key managerial decisions such as vision, mission, and objectives.
- Possible to eliminate communication barriers between the headquarters and subsidiaries.
- Proper control is possible with the ethnocentric approach.
- The parent company can monitor the operations of the subsidiaries effectively.
- Better coordination of activities between the parent company and subsidiary are possible.
- Need to pay more for the expatriates from the home country.
- Cross-cultural variations may lead to clashes between the various levels of the employees.
- Host country national employees may get disappointed by losing the key managerial roles.
- The subsidiary may lose skilled and experienced employees due to the ethnocentric approach.
- Expatriates from the home country may not aware of the local values and beliefs, so cultural clashes may arise and may show an effect on the business.
In polycentric approach, all the key managerial positions are filled with the employees of the host country nationals. Many companies are adopting this approach because they believe that host country nationals can help in fulfilling the objectives of the organizations with a better understanding of the local culture, beliefs, and values. Here subsidiary is given freedom to take decisions and formulate strategies according to the local business environment and vision and mission of the headquarters.
- Host country managers can analyze and understand the local markets and local people
- Better coordination with the business environment is possible, both internal and external.
- No difficulty arises due to cultural issues.
- It creates job satisfaction and job enrichment to the host country nationals.
- Hiring host country nationals is less expensive than hiring expatriates.
- Local market knowledge of the host country nationals enables them to take strategic decisions.
- It may not always create a scope of better coordination between headquarters and subsidiaries.
- Quick control of operations is not possible because of the key managerial positions are occupied by the host country nationals.
- Though the host country managers follow the vision and mission of the organization, then also errors may occur in the fulfillment of the standards of organization culture.
According to geocentric approach, organizations hire neither the home country nationals nor the host country nationals preferably. They recruit employees on the basis of the concept right person for the right job. Here organizations hire right persons or suitable employees for the effective running of the business operations, irrespective of the nationality. Geocentric approach facilitates competitive advantage by hiring most talented and eligible people.
- The geocentric approach creates a scope to hire world’s best talented and skilled employees.
- It facilitates competitive advantage and helps in reaching the market empire position.
- Hiring most talented and eligible people can fulfill the objectives of the organization effectively.
- This approach helps in reducing the unfair treatments and clashes in the organization due to the favoritism towards nationality.
- Hiring according to geocentric approach is expensive.
- Chance of cross-cultural clashes become high
- It may not always facilitate better coordination and control of the operations of the organization.
- Difficult to monitor and control the operations
- Organizations need to spend more on expatriate relocation allowance.
- High cross-cultural variations arise.
Expatriate training and development
While hiring employees for international assignments, the organization needs to provide better training for the employees. The skill set is not only the constraint to decide the training needs, and it is necessary for all the levels of employees to fit in the international environment and culture. Expatriates may face problems with the local language, culture, and beliefs of the local people, managing personal and family life in the completely new environments. Proper training and development motivate the employees to perform better in achieving the organization’s objectives effectively.
International environment and components of compensation
The components of expatriate compensation vary with the domestic compensation standards, so the organizations need to fulfill various requirements of the expatriates while hiring. Companies need to provide housing allowance, travel allowance, education allowance for expatriates children, relocation allowance, cost of living adjustment packages, and currency differential packages, etc.,