CHAPTER Introduction 1 - Cengage EMEA

1 1 CHAPTER ObjectivesIn this introductory CHAPTER , we establish the scope of the : Define key terms in international human resourcemanagement (IHRM) and consider several definitions ofIHRM. Introduce the historically significant issue of expatriateassignment management and review the evolution of theseassignments to reflect the increasing diversity with regard towhat constitutes international work and the type and lengthof international assignments. Outline the differences between domestic and internationalhuman resource management , and detail a model whichsummarizes the variables that moderate these differences. Present the complexity of IHRM, the increasing potential forchallenges to existing IHRM practices and current models,and an increasing awareness of the wide number of choiceswithin IHRM practices due to increased transparency andfaster and more detailed diffusion of these practices acrossorganizational units and of the bookThe field of international HRM has been characterized by three broad first2emphasizes cross-cultural management : examining human behaviorwithin organizations from an international perspective.

2 A second approach devel-oped from the comparative industrial relations and HRM literature3and seeks todescribe, compare and analyze HRM systems in various countries. A third approachseeks to focus on aspects of HRM in multinational approaches are de-picted in Figure 1-1. In this book, we take the third approach. Our objective is 9/6/07 5:24 PM Page 1explore the implications that the process of internationalization has for the activi-ties and policies of HRM. In particular, we are interested in how HRM is practicedin multinationals hence the subtitle of this book Managing People in a Multina-tional Context .As Figure 1-1 demonstrates, there is an inevitable overlap between the three ap-proaches when one is attempting to provide an accurate view of the global realitiesof operating in the international business environment. Obviously, cross-culturalmanagement issues are important when dealing with the cultural aspects of foreignoperations.

3 Some of these aspects will be taken up in CHAPTER 9 where we deal withHRM in the host country context indicated by (a) in Figure 1-1. CHAPTER 10 dealswith industrial relations issues and draws on literature from the comparative IRfield (b) in the above figure. While the focus of much of this book is on the estab-lished multinational enterprise (MNE) a firm which owns or controls businessactivities in more than one foreign country we recognize that small, internation-alizing firms which are yet to reach multinational firm status, and family-ownedfirms, also face international HRM international HRMB efore we can offer a definition of international HRM, we should first define thegeneral field of HRM. Typically, HRM refers to those activities undertaken by an or-ganization to effectively utilize its human resources. These activities would includeat least the following:1 human resource planning2 Staffing (recruitment, selection, placement)3 Performance management 4 Training and development5 Compensation (remuneration) and benefits6 Industrial relationsThe question is of course which activities change when HRM goes international .

4 Amodel (shown in Figure 1-2) developed by Morgan6 is helpful. He presents IHRMon three dimensions:1 The broad human resource activities of procurement, allocation and utilization.(These three broad activities can be easily expanded into the six HR activitieslisted above.)2 CHAPTER 1 INTRODUCTIONIHRM in themultinationalcontextCross-culturalman agementComparativeHR and IRsystemsabFigure 1-1 Inter-relationships between approaches to the 9/6/07 5:24 PM Page 22 The national or country categories involved in international HRM activities: the host-country where a subsidiary may be located; the home-country where the firm is headquartered; and other countries that may be the source of labor, finance and other three categories of employees of an international firm: host-country nationals (HCNs); parent-country nationals (PCNs); and third-country nationals (TCNs). Thus, for example, the US multinational IBM employs Australian citizens in itsAustralian operations (HCNs), often sends US citizens (PCNs) to Asia-Pacific coun-tries on assignment, and may send some of its Singaporean employees on an as-signment to its Japanese operations (as TCNs).

5 The nationality of the employee isa major factor in determining the person s category , which in turn is frequently amajor driver of the employee s defines international HRM as the interplay among these three dimen-sions in Figure 1-2 human resource activities, type of employees and countries ofoperation. We can see that in broad terms IHRM involves the same activities asdomestic HRM ( procurement refers to HR planning and staffing). However,domestic HRM is involved with employees within only one national , domestic HRM is taking on some of the flavour of IHRM as it dealsmore and more with a multicultural workforce. Thus, some of the current focus ofdomestic HRM on issues of managing workforce diversity may prove to be benefi-cial to the practice of IHRM. However, it must be remembered that the way inwhich diversity is managed within a single national context may not necessarilytransfer to a multinational context without some is an expatriate?

6 One obvious difference between domestic and international HRM is that staff aremoved across national boundaries into various roles within the internationalCHAPTER 1 INTRODUCTION3 Host-country nationals (HCNs)Parent-country nationals (PCNs)Third-country nationals (TCNs)CountriesProcureAllocateUtilizeHum an resource ActivitiesType of employeesHostHomeOtherFigure 1-2A model of IHRMS ource:Adapted from Morgan, international human resource management : Fact or Fiction ,Personnel Administrator,Vol. 31, No. 9 (1986), p. 9/6/07 5:24 PM Page 3firm s foreign operations these employees have traditionally been called expa-triates . An expatriate is an employee who is working and temporarily residing ina foreign country. Some firms prefer to call such employees international as-signees . While it is clear in the literature that PCNs are always expatriates, it isoften overlooked that TCNs are expatriates, as are HCNs who are transferred intoparent country operations outside their home 1-3 illustrates howall three categories may become , the term inpatriatehas come into vogue to signify the transfer of sub-sidiary staff into the parent country (headquarters) use has addeda level of confusion surrounding the definition of an expatriate.

7 For example, theInternational human resource management Reference Guide,published by theInstitute for international human Resources (a division of the US Society forHuman resource management ) defines an inpatriate as a foreign manager in . A foreign manager in the is then defined as an expatriate in the the is the host-country and the manager s home-country is outside ofthe .9In other words, an inpatriate is also defined as an expatriate. A furtherindication of the confusion created by the use of the term inpatriate is that somewriters in international management define a HCN as an inpatriate. HCNs only be-come inpatriates when they are transferred into the parent-country operations asexpatriates, as illustrated in Figure 1-3. Given the substantial amount of jargon in IHRM, it is questionable as to whetherthe term inpatriate adds enough value to justify its use. However, companies nowuse the term.

8 For example, the Finnish multinational Nokia uses expatriate to sig-nify staff who are transferred out of, and inpatriate to signify staff transferred into,a particular country. These terms are regarded as a constant reminder to all man-agers that there are movements of staff that need to be managed, and not all arePCNs. For clarity, we will use the term expatriatethroughout this text to refer toemployees who are transferred out of their home base into some other area of thefirm s international operations, unless we are directly quoting from anothersource. In doing so, we recognize that there is increasing diversity with regardto what constitutes international work and the type and length of international4 CHAPTER 1 INTRODUCTIONP arent-countryHQ/operationsSubsidiaryoper ations country ANationalborderNationalborderHCNsHCNsPCN sPCNsTCNsSubsidiaryoperations country BFigure 1-3 international assignments create 9/6/07 5:24 PM Page 4assignments and the increasingly strategic role of the HR function in many organi-zations, which in turn influences the nature of some expatriate roles.

9 Stahl and Bj rkman have recognized this expansion in the scope of the field ofIHRM in their Handbook of Research in international human resource Manage-mentwhere they define the field of IHRM in the following way: We define the field of IHRM broadly to cover all issues related to themanagement of people in an international context. Hence our definition ofIHRM covers a wide range of human resource issues facings MNCs in differentparts of their organizations. Additionally, we include comparative analyzes ofHRM in different will be examining the expanding scope of the IHRM field in this book and willreturn to the question of a definition of the field in the final between domestic and international HRMIn our view, the complexityof operating in different countries and employing dif-ferent national categories of workers is a key variable that differentiates domesticand international HRM, rather than any major differences between the HRM activ-ities performed.

10 Dowling11 argues that the complexity of international HR can beattributed to six factors:1 More HR need for a broader involvement in employees personal in emphasis as the workforce mix of expatriates and locals external of these factors is now discussed in detail to illustrate its HR activitiesTo operate in an international environment, a human resources departmentmust engage in a number of activities that would not be necessary in a domesticenvironment: international taxation; international relocation and orientation;administrative services for expatriates; host-government relations; and languagetranslation are subject to international taxation, and often have both domestic( home-country) and host-country tax liabilities. Therefore, tax equalizationpolicies must be designed to ensure that there is no tax incentive or disincentiveassociated with any particular international administration oftax equalization policies is complicated by the wide variations in tax laws acrosshost countries and by the possible time-lag between the completion of an expatri-ate assignment and the settlement of domestic and international tax liabilities.