International Management of Human Resources

The trend towards globalization engendered in part by the needs to stay competitive and to increase one's market share have brought with them a number of considerations for the development and implementation of fair human resources policies in multinational organizations. Local culture, laws, and political and economic factors are just some of the factors that must be considered at each locality. Although generic human resources policies and practices are of some value, they must be modified at the local level to take into account the particular cultural needs and legal requirements in each country. In addition, the human resources system must take into account the special needs of expatriates — employees working on a long-term or permanent basis in another country.

Keywords Culture; Expatriate; Globalization; Offshoring; Outsourcing; Strategic Planning

International Business > International Management of Human Resources

Overview

Although once a historical novelty, globalization (the business practice of extending an organization's sales, ownership, or production to new markets in other countries) has become commonplace. The suit on the rack in the local department store may have been manufactured in China. The "Japanese" automobile one drives to work may have been manufactured in Kentucky. The technician answering the phone on the help line for the software company may be sitting at a desk in India. In some cases, this work has been outsourced — contracted to another organization even though it could have been done in-house. In other cases, the work is offshored — performed by local employees in another country with lower personnel or production costs.

There are many reasons for globalization. Among them is the continuing pressure perceived by some organizations to expand their business markets and customer bases. Also, in order to stay competitive in the global economy, organizations must have their operations performed as economically as possible. These trends continue to grow. It has been estimated, for example, that in the decade between 2005 and 2015, approximately 3,000,000 jobs traditionally done in the US will be moved offshore. This means production jobs won't be the only jobs moving to countries where goods can be manufactured more cheaply; office support, sales, management, and even legal jobs will be moved abroad.

The trend towards globalization has implications for human resources management within the organization. First, this trend means not only that the market for the organization's goods or services is larger; it means that the number of competitors is larger, too. This puts pressure on the organization to be more efficient by producing top-level goods and services at globally competitive costs. As a result, organizations today are seeking more and better ways to increase their performance and lower their costs. Although this can be done partially through automation and other applications of today's technology, it also means that organizations need to encourage high performance from their employees, no matter what country they are working in. An organization's human resources system can contribute to this goal through objectively defining the jobs to be done and establishing hiring, performance appraisal, and other human resources functions. The human resources system can also support high performance in the organization by helping employees to acquire more and better job-related skills and rewarding them financially for contributing to the success of the organization.

Carrying out these functions, however, becomes more complicated when the organization operates across national borders. Differences in culture, political and economic systems, and legal and industrial relations concerns can have a significant impact on the way the organization is allowed to function.

One of the issues with which the human resources system must deal in the multinational organization is differences in culture. Culture comprises the widely-held assumptions of a group of people, and can have a significant impact on how one can effectively do business. Human resources policies and practices that are appropriate in one country may be inappropriate in another country due to the differences in underlying assumptions. This makes development and implementation of consistent, equitable, and fair practices for the entire company an interesting challenge when different branches or operations are located in different countries. For example, US managers tend to be more concerned about productivity than are their counterparts in China, whereas Chinese managers are more concerned about maintaining a harmonious environment than are their American counterparts. Similarly, workers in some countries like Mexico tend to accept an unequal distribution of power, whereas workers in other countries such as Sweden are far less tolerant of inequalities.

Cultural differences can also affect how people communicate, what assumptions they make, and how they perceive the world in general. In Germany, for example, senior people are always addressed formally, a practice that has largely fallen by the wayside in the US. Although this may seem like a little thing, it can potentially influence how management perceives an employee who breaks this unwritten code. This perception, in turn, can have an effect on the opportunities the employee is given because of the manager's perception of the employee as insubordinate or rude. In some Asian cultures, it is important not to "lose face" or cause another to do so. Therefore, it is important to pay attention to the body language of other people as it is more likely to express the real intent of the communication than are placating words. Sending a female representative to negotiate in a male-dominated country may result in the representative not being taken seriously or the prospective client being insulted; at least until the representative's ability was proven. The human resources function in the organization needs to take these considerations into account and provide diversity training to help smooth communications between cultures.

Differences between countries are not only cultural or social. Varying political, economic, and legal systems can also affect the way that an organization is allowed to operate and how it can treat its employees. These matters fall under the purview of the human relations system. Perhaps one of the best known differences between some countries — and one of the reasons that outsourcing is so popular in some countries — is the fact that compensation varies from country to country. For example, the hourly rate of production workers varies widely across the globe; those in Mexico are paid the equivalent of $2.38 per hour while their counterparts in Germany are being paid $25.08, with a range of rates in between.

Legal issues regarding employer/employee relations differ from country to country, too. In France, for example, the employer's right to terminate workers has been severely restricted, as has the number or hours that an employee can legally work per week. In many European countries, work councils rather than labor unions or less formal employee/management teams are involved in mediation. Work councils are formal groups whose representatives are elected by the employees. The councils meet with management on a regular basis to discuss policies affecting workers. In addition, organizations in countries who are members of the European Union (EU) are required to "inform and consult" employees on an on-going basis on various actions that affect them. However, there are still differences between the practices between EU countries, including minimum wage, maximum work hours per week, and minimum number of holidays.

Applications

At its most basic, the human resources system relates to everything involving the treatment of the humans in the organization. At a minimum, this typically includes activities such as human resource planning; recruitment, hiring, and placement; training and development; performance appraisal; wages, compensation, and perquisites ("perks"); and employee relations. Although the need for these basic functions is the same no matter where the operation is located, the way that they are implemented may change due to local requirements.

Defining the Human Resources Function in International Organizations

As with any function within a well-run organization, the development of a good human resources system requires planning. The human resources planning process is part of the strategic planning process for the organization. To help ensure the viability of the human resources function within each country in a multinational organization, human resources planning needs to be carried out not only at the corporate level, but also at the local level. This will help ensure that the plans consider local customs, laws, or other requirements that can affect the human resources function. For example, in Germany, employees have the legal right to be heard in determining the policies — including human resources policies — of the organization. Before implementing new policies in this country, therefore, the workers must first be heard.

Human resources planning includes considerations such as the number and types of positions that the operation needs, what the objective requirements are for each position, what is the succession of the various positions in the organization, the process for acquiring replacements on a temporary or permanent basis, and how the human resources function will respond to changes in the organization as the organization grows in the foreseeable future. For operations on foreign soil, these planning operations also should include language and immigration requirements. For example, if an employee is required to give technical help to customers in the US, s/he must be fluent in English. No matter how well qualified the person is technically, unless this criterion can be met, s/he cannot do the job.

All human resources planning activities should be based on objective standards for what is required of a job. This entails the development of an empirically-based job description that is the end product of an objective job analysis. The job analysis should be used to determine the exact nature of a job, including the tasks and duties to be done; the knowledge, skills and abilities necessary to adequately perform these; and the criteria that distinguish between acceptable and unacceptable performance. The results of a job analysis are typically used in writing job descriptions and setting standards for use in performance appraisals, cornerstones used for determining placement and advancement opportunities (succession planning), wages and other compensation, and training needs.

Once the plan has been developed, the human resources department needs to determine how it is going to recruit, hire, and place prospective employees at the local level. In addition to the steps that need to be taken to ensure fair hiring practices in any country (i.e., base the job on objective requirements and set in place hiring practices that ensure fair consideration of all qualified employees), one must take into account the legal requirements of the host country. In addition, organizations that are incorporated in or based in the US are still subject to the equal employment laws of the US, including Title VII of the Civil Rights Act of 1964 (which makes it illegal for employers to discriminate against persons on the basis of race, color, religion, gender, or national origin), the Americans with Disabilities Act (which prohibits organizations from discriminating against either applicants or employees on the basis of a disability, and requires them to make reasonable accommodations for people who could otherwise do the job), and the Age Discrimination in Employment Act (which makes it illegal to discriminate against applicants or employees over the age of 40 on the basis of their age). These laws apply to employees throughout the organization, including those working on foreign soil. If such equal employment opportunity laws conflict with the laws of the country in which the operations are taking place, however, the laws of the local country typically take precedence. However, an employer may not transfer an employee to a country with a conflicting law for the purpose of circumventing US law (e.g., sending an older worker to a country with a lower mandatory retirement age).

The wages, compensation, and perks package that an employee receives in return for labor is one criterion upon which the decision whether or not to take a job typically is based. However, the laws regarding employee compensation differ from country to country. Similarly, laws on severance packages differ from country to country as do the expectations for the number of days off per year. All such laws need to be taken into account when developing compensation packages for local employees. However, this does not mean that compensation for comparable positions in different national operations of a multinational organization need to be the same. A fair approach to employee compensation needs to be developed within the constraints and culture of each local country. To do this, it is important to thoroughly understand how compensation is delivered in each country in which the organization has operations, keep current on any changes to such laws in each country, and avoid irrelevant comparisons with other countries in which the organization has operations.

In virtually every environment human beings gather and attempt to communicate, there will be difficulties at one time or another. In the organization, this includes issues of employee representation, rights, and responsibilities. However, each country has its own approach to dealing with such issues. These differences must be taken into account and require the involvement and implementation by knowledgeable human resources personnel in-country who can make sure that the policies and practices are not only fair in accordance with local laws and culture, but that they are fairly implemented.

Implementing the Human Resources Function in International Organizations

There are two approaches to handling human resources for a multinational organization: a decentralized model in which there is a different human resources function in each country or a centralized model in which there is one human resources function for the entire organization. The decentralized model has intuitive appeal. In this model, local experts familiar with the culture, laws, and customs of the country would be better able to understand and deal with issues arising out of cultural differences. However, recent research has shown that a more standardized approach to dealing with a multinational organization's human resources issues in all operations is feasible, although local requirements must still be taken into account and respected. Global human resources functions work best in organizations that truly think of themselves as being global rather than a loose collection of operations in different countries. A global approach to human resources also works best in a company with a strong organizational culture. If employees feel a part of the organizational culture, they are more likely to accept a global approach to human resources than if they feel that they are merely workers for hire with no vested interest in the success of the organization.

However, even when top management nurtures a strong organizational culture, there may be resistance to implementing global policies or procedures at the local level. In such cases, management must be willing to do the research necessary to determine if there is a genuine local reason — whether it is legal or cultural — that the policy or practice cannot be implemented or if the resistance is just because the approach has not been done before. Even if the latter is the case, it is wise to proceed cautiously and not try to force a sudden change. A gradual introduction or pilot study of the new approach can help demonstrate its effectiveness and overcome local objections. Research has found that organizations that are successful in implementing a global human resources function do not try to force every location to do everything exactly the same. Rather, they work within the local system, integrating global tools as appropriate.

The implementation of a global human resources system, however, does not obviate the need for a local human resources function in each of the countries in which the multinational organization has operations. These local entities should be treated as part of the corporate human resources team, not just the people responsible for implementing policies and procedures developed elsewhere. It is important to not only get input from the local human resources departments, but to give them serious consideration. The local human resources managers should be treated as equal partners in the development of the human resources system.

When attempting to implement a global human resources system, it is important not to ignore the fact that local differences are real. Just as things needed in the "home" country may not be needed in an operation in another country, there may be requirements in other locations that would not even be considered at corporate headquarters. For example, although transportation to work in the US is usually by car or public transportation, in other countries transportation is more often done by scooter or bicycle. For the organization to stay competitive in the local market, it must consider such differences.

It is important that the global system includes people familiar with the requirements for each locality. It also is important to give the local human resources personnel leeway regarding how polices and procedures are implemented. The key to a global human resources function is to have compatible end results and to not micromanage how each human resources manager does his/her job. Local human resources personnel should be able to make additions to the process or differentiate as necessary.

Other Human Resources Considerations in International Organizations

Multinational organizations do not just employ people in other countries to work locally. To maintain the organizational culture and help ensure that quality and performance are up to the same standards world-wide, multinational organizations also relocate personnel from the home country to various international operations on a temporary or permanent basis. On a short-term basis, employees are considered to be on long business trips. On a long-term basis, however, such employees are considered to be expatriates. Human resources policies must be implemented that deal with the issues that arise from employing expatriates. Considerations should include such factors as the purpose of the relocations, how candidates are selected for international assignments, who will bear the costs of reassignment and how the compensation package will change for employees who are relocated (e.g., incentive pay, hardship allowance, housing and/or housing allowance, income tax equalization), and the concomitant personnel practices for implementing these and other considerations.

There are other considerations when setting up a global human resources system. In today's post-9/11 climate, consideration must be given to the possibility of terrorism, particularly in actions against expatriates. Such considerations include crisis negotiating teams, kidnapping and ransom insurance and training for those working either temporarily or permanently in another country on how to act so as not to draw undue attention to themselves.

Terms & Concepts

Culture: The basic shared assumptions, beliefs, norms, and values held by a group of people. These may be either consciously or unconsciously held.

Empirical: Theories or evidence that are derived from, or based on, observation or experiment.

Expatriate: A person who is not a citizen of the country in which s/he is working.

Globalization: The process of businesses or technologies spreading across the world. This creates an interconnected, global marketplace operating outside constraints of time zone or national boundary. Although globalization means an expanded marketplace, products are typically adapted to fit the specific needs of each locality or culture to which they are marketed.

Human Resources: In general, human resources are any personnel employed by an organization. The field of study related to recruiting and managing the organization's personnel. A good human resources system needs to consider, at a minimum, human resource planning; recruitment, hiring, and placement; training and development; performance appraisal; wages, compensation, and perquisites ("perks"); and employee relations.

Job Analysis: The systematic, empirical process of determining the exact nature of a job, including the tasks and duties to be done; the knowledge, skills and abilities necessary to adequately perform these; and the criteria that distinguish between acceptable and unacceptable performance. The results of a job analysis are typically used in writing job descriptions and setting standards for use in performance appraisals.

Offshoring: The practice of relocating part of an organization's business to another country with lower costs. Off-shore work is performed by local employees in the new country and was previously performed by domestic employees.

Organizational Culture: The set of basic shared assumptions, values, and beliefs that affect the way employees act within an organization.

Outsourcing: The practice of contracting with another organization to provide services that could be performed in-house.

Performance Appraisal: The process of evaluating an employee's work performance and providing feedback on how well s/he is doing (typically against some standard of performance for that job).

Perquisites ("perks"): Something given to the employee in return for work over and above regular pay or compensation. Perks may include such things as health insurance, a company car, or a private office.

Strategic Planning: The process of determining the long-term goals of an organization and developing a plan to use the company's resources — including materials and personnel — in reaching these goals.

Bibliography

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Edwards, P.K., Sánchez-Mangas, R., Tregaskis, O., Levesque, C., McDonnell, A., & QUINTANILLA, J. (2013). Human resource management practices in the multinational company: A test of system, societal, and dominance effects. Industrial & Labor Relations Review, 66, 588-617. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=88923800&site=ehost-live

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Suggested Reading

Adeleye, I. (2011). Theorizing the diffusion of international human resource practices: towards an integrated conceptual approach. International Journal of Business & Management, 6, 254-269. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=69686443&site=ehost-live

Bennett, R., Aston, A., & Coiquhoun, T. (2000). Cross-cultural training: a critical step in ensuring the success of international assignments. Human Resource Management, 39(2/3), 239-250. Retrieved April 2, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=13643809&site=bsi-live

Gong, Y. (2003, Dec). Subsidiary staffing in multinational enterprises: Agency, resources, and performance. Academy of Management Journal, 46, 728-739. Retrieved April 2, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=11901941&site=bsi-live

Harvey, M., Speier, C., & Novecevic, M. M. (2001, Sep). A theory-based framework for strategic global human resource staffing policies and practices. International Journal of Human Resource Management, 12, 898-915. Retrieved April 2, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5180408&site=bsi-live

Harzing, A. (2001, Sum). Who's in charge? An empirical study of executive staffing practices in foreign subsidiaries. Human Resource Management, 40, p139-158. Retrieved April 2, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=13643832&site=bsi-live

Reynolds, C. (1997, Sum). Expatriate compensation in historical perspective. Journal of World Business, 32, 118-132. Retrieved April 2, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9712155680&site=bsi-live