International Human Resource Management

An Indian IT firm opens an office in Munich. HR must now hire under German labour rules, pay engineers posted from India, explain German workplace habits to them, and plan their return home. A firm that works only in Pune never faces this. International HRM is the name for the wider job.

IHRM is mostly the concern of a multinational company (MNC): a firm that owns and runs operations in more than one country. The country where its head office stands is the home (or parent) country. A country where it runs a branch or subsidiary is a host country.

The functions are the ones covered in Human Resource Management (this unit): recruitment, selection, training and development, appraisal and, when needed, dismissal. IHRM does them across borders. It adds work that a domestic firm never needs, such as choosing, preparing and paying people for foreign postings, and bringing them home again.

Back to Munich. In Pune, the firm deals with one set of labour laws, one tax system and one set of workplace habits. In Munich it deals with German law and German customs, while the engineers it sends bring Indian expectations about pay and career. The table shows how far the job widens.

The objectives of IHRM. A firm that does IHRM well aims to:

• build the managerial, technical and knowledge skills of its managers and staff, so that it can run global operations;
• manage the performance, pay and career path of staff who work abroad;
• organise cross-cultural counselling and language training;
• understand work practices in different countries, and bring them closer together;
• build HR strategies, and new ways of managing performance, that stand up against global competitors;
• reduce cultural friction and build harmony between people of different cultures.

Don't confuse IHRM with comparative HRM. IHRM manages the people of one firm that operates across borders. Comparative HRM compares how HR is practised in different countries, for example how Indian and German firms hire.

Where it breaks. The line between domestic and international is not sharp. A bank in India that employs staff from many states and languages already meets some of these problems (see Workforce Diversity and Cross-Cultural Behaviour, this unit). What changes abroad is that laws, currencies and governments change as well.

For exams. A matching question has paired international HRM with managing the human resource challenges of international operations. Learn the differences in the table and the objectives as a list.

More countries, more kinds of staff, more activities, more risk.

The Munich office has three engineers. One was sent from Pune, one was hired in Munich, and one came from the firm's office in Poland. Their pay, tax, rights and career paths differ. IHRM first sorts such people by nationality.

Two illustrations follow: the Indian IT firm's Munich office, and a European carmaker, headquartered in Germany, with a plant in Pune. Both firms are hypothetical.

The label depends on the firm and the unit, not on the person alone. An Indian engineer at the carmaker's Pune plant is an HCN. If the carmaker sends her to its plant in Spain, she is a TCN there. If she works for the Indian IT firm in Munich, she is a PCN.

Don't confuse where a person works with which type she is. An Indian working abroad is not automatically a host country national. The host country is the one where the unit stands, so an HCN is a national of that country. Nor are PCNs only the people at head office: those posted abroad are PCNs too, and they are the expatriates described later in this chapter.

Morgan's model. P. V. Morgan (1986) set out a three-dimensional model of what IHRM covers. It joins three sets of three things.

• Three broad HR activities: procurement (getting people), allocation (placing them in jobs and units) and utilisation (getting good work from them). The everyday tasks, such as planning, recruitment, selection, training, appraisal and pay, sit under these headings.
• Three country categories: the home country, the host country, and other countries that may supply labour or finance.
• Three types of employee: PCNs, HCNs and TCNs.

Two combinations show how the cube works. Hiring local engineers in Munich is procurement of HCNs in the host country. Posting an engineer from Pune to Munich is allocation of a PCN from the home country to the host country.

Don't confuse Morgan's HR activities with the list of HR functions. Study notes sometimes give recruitment, training, appraisal and compensation as Morgan's first dimension. Those are examples of the work. Morgan's three broad headings are procurement, allocation and utilisation.

Where it breaks. Nationality is a blunt label. A person with two passports, or one who has lived in the host country for twenty years, fits no box neatly. The model also describes what IHRM covers. It does not tell a firm whom to send where; the staffing approaches (next concept) do that.

For exams. Know the three dimensions in order: activities, countries, employees.

ACE: Activities, Countries, Employees. Each has three parts.

The new Munich office needs a head. The firm could send a manager from Pune, hire a German locally, or pick the best candidate from any of its offices. Each choice trades control, cost and local knowledge. Four staffing approaches name the options.

When each suits.

• Ethnocentric: a new market where the firm has no local managers yet, or where it wants its own methods copied exactly. The carmaker's first years in Pune, when engineers from head office set up the plant, fit this.
• Polycentric: a market that differs sharply from home, where local knowledge decides success. The same plant, years later, dealing with Indian suppliers, dealers and labour law through Indian managers, fits this.
• Geocentric: a mature firm with a global strategy, where talent and ideas must flow across units. A large IT firm staffing a Munich project with whoever has the right skills, from any office, fits this.
• Regiocentric: a firm organised by region, whose neighbouring countries share markets and languages. An IT firm that staffs its European operations with managers from several European offices fits this.

Don't confuse polycentric with ethnocentric. In ethnocentric staffing head office keeps control and subsidiaries have little autonomy. In polycentric staffing the subsidiary is run by local nationals and has more autonomy. Do not confuse regiocentric with geocentric either: regiocentric picks from one region, geocentric from the whole world.

Ethno: home. Poly: host. Geo: best anywhere. Regio: the region.

Where it breaks. These are ideal types. Most firms mix them: PCNs for finance, HCNs for sales, a TCN for a technical post. They also change over time, and many firms begin ethnocentric and become more polycentric as they learn a market. Nationality is only a stand-in for what the post needs, which is skill and fit.

For exams. Match each approach to who fills the key posts, and give one advantage and one disadvantage of each. A common slip is to say that polycentric subsidiaries have little autonomy.

Go deeper for practitioners

A decision. The carmaker's Pune plant is run by a German quality head, a PCN who leaves in eighteen months. An Indian deputy is capable but has never worked with head-office systems. Do you name her successor now, send her to head office for a year first, or advertise for another PCN? Naming her early keeps local talent and cuts cost, but quality control may weaken meanwhile. A year at head office closes much of the gap.

Finer point. Perlmutter described top management's attitude across many areas of a multinational, not only staffing. Staffing is one place where the attitude shows.

Links. Strategic Human Resource Management (this unit) explains why staffing should fit the strategy. Career Planning and Development (this unit) covers succession planning, which is what the decision above needs.

A European carmaker sends an engineer to set up its Pune plant. She is paid more than local staff, her partner must find work, her child needs a school, and in three years she must return to a job that may not exist. Expatriate management is the part of IHRM that handles all this.

Firms send them to set up operations, to enter overseas markets, and to pass skills and knowledge to their business partners. The experience also builds the firm's pool of managers who can succeed in a global market. Both PCNs and TCNs can be expatriates. An HCN working in her own country is not.

Six strategic roles. An expatriate does more than fill a post. Textbooks describe six roles; one person often plays several. The third column shows each for a manager sent from Pune to the Indian IT firm's Munich office (an illustration).

Control, socialise, network, transfer, span, speak.

Don't confuse the two kinds of control. The agent of direct control watches and checks, with rules and supervision. The agent of socialisation shapes what people want, by sharing values. Also, an expatriate is not an immigrant: the employer sends her, usually for a set period, and expects her back or on to the next post.

The assignment cycle. An expatriate assignment is a managed sequence, not a single transfer.

• Selection. Technical skill is necessary but not enough. Firms also look for adaptability, openness to other cultures, communication skills, and a family ready to move.
• Preparation. A briefing on the job and the place, language lessons, and cross-cultural training (see Workforce Diversity and Cross-Cultural Behaviour, this unit), ideally with a visit to the host city first.
• Compensation. Most firms use the balance-sheet approach. The aim is that the expatriate keeps the standard of living she had at home. The firm compares her costs at home and in the host country in four groups: income tax, housing, goods and services, and savings. It pays the gaps, then adds an incentive for going and allowances for hard postings.
• Support. Help with housing, schooling and the partner's work, and a contact at head office who keeps her in touch.
• Performance review. The host manager sees the work but may not know head-office goals. The home manager knows the goals but does not see the work. A fair review uses both and allows for the host setting.

Why assignments fail. A failed assignment is one that ends early or falls far short. Research since the early 1980s often names the family's difficulty in adjusting, especially the partner's, among the most common reasons. Others are the expatriate's own difficulty with the culture, personal problems, inability to cope with bigger responsibility, poor selection and weak preparation or support.

Where it breaks. Popular figures for how often assignments fail are often high but rest on weak evidence, and they depend on how failure is defined. Long postings are also costly, so many firms now use shorter assignments, regular commuting or virtual teams where the job allows.

In practice. Before sending someone, ask whether a local hire or a short visit can do the job. An expatriate package usually costs much more than a local salary. If an expatriate is the answer, spend on selection, preparation and support, because that is where failures start.

For exams. Know the six roles by name, the assignment steps in order, and what the balance-sheet approach tries to do.

After three years in Munich, an engineer returns to Pune. Her old post has been filled, her team has changed, and her manager has no idea what she learned. Friends say she has become a bit foreign. Within a year she resigns. The firm paid to send her abroad and lost what she learned on the way back.

The return is the last step of the assignment cycle, and one that firms often neglect. Repatriation has four stages. They are the firm's tasks, in order. The first three are practical; the fourth is personal and professional, and it can last long after the paperwork ends.

Reverse culture shock is the stress of coming home to a place that has changed, and of being a changed person. It surprises people because they expect home to be easy. Workforce Diversity and Cross-Cultural Behaviour (this unit) explains culture shock and its reverse. The career side is just as hard. Abroad she may have had more responsibility and independence. At home she may find no suitable post, lower status, pay that falls when the foreign allowances stop, and colleagues who never ask what she learned.

Keeping the returnee's knowledge. What she knows about the host market, the people and the working methods is the return on the whole assignment. Firms can protect it in five ways:

• agree her next post before she leaves the host country;
• keep a mentor at head office in touch with her during the assignment;
• hold a debriefing on her return, and record what she learned;
• give her work that uses the new skills, such as leading a project with the foreign unit;
• ask her to brief and train the next expatriate.

Cultural distance. How far apart the home and host cultures are shapes every stage, from selection to readjustment. Hofstede's dimensions, taught in Workforce Diversity and Cross-Cultural Behaviour (this unit), give the common words for that distance.

Don't confuse the four repatriation stages with the stages of culture shock. The U-curve (honeymoon, crisis, adjustment, mastery) describes how a person feels over time. The four repatriation stages are the firm's tasks in bringing her home. The word "readjustment" appears in both ideas, which is why they are often mixed up.

Where it breaks. The four stages are a tidy sequence; real returns overlap them. The firm's tasks can be finished while the person is still struggling, and families do not follow one timetable. Readjustment is often harder where the home and host cultures differ greatly.

In practice. Treat the return as a career-planning decision, not a travel arrangement. A six-month countdown with a named owner in HR, a confirmed post and a debriefing date helps prevent many of the problems above.

For exams. Give the four stages in order and say what happens in each. Reverse culture shock belongs to the last stage.

Go deeper for practitioners

The W-curve. John and Jeanne Gullahorn (1963) extended the U-curve into a W: a second dip in feeling on return, followed by a second recovery. Like the U-curve, it has only mixed support in research, so use it as a warning, not as a timetable.

A decision. A returnee asks to join a Pune client project that needs her German experience. Her former manager wants her back in the old team, which is short-staffed. If you send her back to the old team, it gets help at once. If you give her the project, you use the knowledge that the posting paid for. Which costs more if you get it wrong, and what would you promise her about her next move?

Links. Career Planning and Development (this unit) treats the return as a career move. Human Resource Planning (this unit) shows how to count the returnees coming back when you forecast posts.