International Human Resource

International Human Resource Management Sixth edition Instructor’s manual Peter J. Dowling Marion Festing Allen D. Engle, Sr. 1 / 4

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Chapter 1: INTRODUCTION

Learning objectives:

• Being able to define key terms in international human resource management (IHRM) and consider several definitions of IHRM.• Knowing about the historically significant issue of expatriate assignment management and reviewing the evolution of these assignments to reflect increasing diversity with regard to what constitutes international work and the type and length of international assignments.• Getting acquainted with the differences between domestic and international human resource management and detailing a model that summarizes the variables that moderate these differences.• Understanding the complexity of IHRM and the increasing potential for challenges to existing IHRM practices and current models, and developing an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and the faster and more detailed diffusion of these practices across organizational units and firms.

Chapter Summary:

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The purpose of this chapter is to provide an overview of the emerging field of international

HRM. This is achieved by:

• Defining key terms in IHRM and considering several definitions.• Introducing the historically significant issue of expatriate assignment management and reviewing the evolution of these assignments to reflect increasing diversity with regard to what constitutes international work and the type and length of international assignments.• Outlining the differences between domestic and international human resource management by looking at six factors (more HR activities; the need for a broader perspective; more involvement in employees’ personal lives; changes in emphasis based on variances in the workforce mix of expatriates and locals; risk exposure; and more external influences) and detailing a model which summarizes the variables that moderate these differences.• Presenting the complexity of IHRM, the increasing potential for challenges to existing IHRM practices and current models, and developing an increasing awareness of the wide number of choices within IHRM practices due to increased transparency and the faster and more detailed diffusion of these practices across organizational units and firms.We conclude that the complexity involved in operating in different countries and employing different national categories of employees is a key variable in differentiating between domestic and international HRM, rather than any major differences between the HR activities performed. We also discuss four other variables that moderate differences between domestic and international HRM: the cultural environment; the industry (or industries) with which the multinational is primarily involved; the extent to which a multinational relies on its home country’s domestic market; and the attitudes of senior management. These five variables are shown in Figure 1.3. Finally, we discuss a strategic HRM model applied in multinational

2 Bullet points in the chapter summaries include important parts taken from the lecture, which are covered by the PowerPoint materials provided to instructors. 2 / 4

6 enterprises (Figure 1.4), which draws together a number of external and organizational factors that impact on IHRM strategy and practice and in turn on MNE goals.

Links to other chapters:

This introductory chapter provides the basis for all the other chapters. The definitions and understanding of the differences between HRM and international HRM described herein are key to understanding the other chapters of the book.

Discussion Questions:

• What are the main similarities and differences between domestic and international HRM?

This question is addressed in ‘Defining international HRM’ (pp. 2-3) and ‘Differences

between domestic and international HRM’ (pp. 4-5):

• HRM = ‘[...] those activities undertaken by an organization to utilize its human resources effectively’ (p. 2), including at least: human resource planning, staffing (recruitment, selection, placement), performance management, training and development, compensation (remuneration) and benefits, and industrial relations (→similarities between domestic and international HRM).

Differences:

• Domestic HRM involves employees working within only one national boundary.• IHRM also includes aspects pertaining to the national or country categories involved in international HRM activities (the host country where a subsidiary may be located, the parent country where the firm is headquartered, and ‘other’ countries that may be the source of labor, finance, and other inputs), as well as the three categories of employees of an international firm (host country nationals, parent country nationals, and third country nationals).• In IHRM, staff are moved across national boundaries into various roles within the international firm’s foreign operations (expatriates/international assignees).• In IHRM, the complexity of operating in different countries and employing different national categories of workers is a key variable that distinguishes domestic and international firms. This complexity is due to six factors: more HR activities, the need for a broader perspective, more involvement in employees’ personal lives, changes in emphasis as a result of variances in the workforce mix of expatriates and locals, risk exposure, and broader external influences.

• Define these terms: “International HRM”, “PCN”, “HCN”, and “TCN”.

This question is addressed in ‘Defining international HRM’ (pp. 2-4).

International HRM= • ‘[…] interplay between the three dimensions of human resource activities, types of employees, and countries of operation’ (Morgan).• ‘We define the field of IHRM broadly to cover all issues related to the management of people in an international context. Hence, our definition of IHRM covers a wide range of human resource issues facing MNCs in different parts of 3 / 4

7 their organizations. Additionally, we include comparative analyses of HRM in different countries’ (Stahl and Björkman, 2010); → definition used in this book (p.4).

Three categories of employees in an international firm:

• PCN – parent country national • HCN – host country national • TCN – third country national For example, the US multinational IBM employs British citizens in its British operations (HCNs), often sends US citizens (PCNs) to Asia-Pacific countries on assignment, and may send some of its Singaporean employees on assignments to its Chinese operations (as TCNs). The nationality of the employee is a major factor in determining the person’s “category”, which in turn is frequently a major driver of the employee’s compensation and employment contract.

• Discuss two HR activities in which a multinational firm must engage, which would not be required in a

domestic environment.The question refers to material found on p. 5 under ‘More HR activities.’

To operate in an international environment, a human resources department must engage in a number of activities that would not be necessary in a domestic environment. Examples of required international activities are: international taxation, international relocation and orientation, administrative services for expatriates, host-government relations, and language translation services.

• Expatriates are subject to international taxation, and often they have both domestic (i.e. home country) and host country tax liabilities. Therefore, tax equalization policies must be designed to ensure that there is no tax incentive or disincentive associated with any particular international assignment. The administration of tax equalization policies is complicated by the wide variations in tax laws across host countries and by the possible time lag between the completion of an expatriate assignment and the settlement of domestic and international tax liabilities. In recognition of these difficulties, many MNEs retain the services of a major accounting firm for international taxation advice.• Host government relations represent an important activity for the HR department in an MNE, particularly in developing countries where work permits and other important certificates are often more easily obtained when a personal relationship exists between the relevant government officials and multinational managers.Maintaining such relationships helps resolve potential problems that can be caused by ambiguous eligibility and/or compliance criteria for documentation such as work permits. US-based multinationals, however, must be careful in how they deal with relevant government officials, as payment or payment-in-kind, such as dinners and gifts, may violate the US Foreign Corrupt Practices Act (FCPA).

Further discussion on other activities can be found on pp. 5-6.

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