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Recent definitions concern IHRM with activities of how MNCs manage their geographically
decentralized employees in order to develop their HR resources for competitive advantage, both
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subsidiaries and
locally
and
globally.
The role
andor
functions
of IHRM,
the(/guarantees.php)
relationship between
headquarters, and the policies and practices are considered in this more strategic approach.
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Dowling, Schuler and Welch define IHRM as "a collection of policies and practices that a
multinational enterprise uses to manage local and non-local employees it has in countries other
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than their home countries (Dowling et al., 1993: p2)."
Due to the development of globalization, new challenges occur and increase the complexity of
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managing MNCs. IHRM is seen as a key role to balance the need for coordinating and controlling
oversea subsidiaries, and the need to adapt to local environments. Therefore, the definition of
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IHRM has extended to management localization, international coordination, and the development
of global leadership, etc. (Gregerson et al., 1998; Scullion and Starkey, 2000).
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To sum up, IHRM should not become a description of fragmented responses to distinctive national
problems nor about the 'copying' of HRM practices, as many of these practices suit national
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cultures and institutions. Indeed, issues of concern in IHRM are those of consistency or
standardization within diverse social and cultural environments (Nankervis, Compton & Baird,
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2002).
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In order to explore the field of IHRM, it is important to understand why there is gradual increase of
interest in International Human Resource Management. IHRM is of great importance at present for
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a number of reasons:
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Recent years have witnessed the rapid growth of globalization and international competition.
The
multinational corporations (MNCs) have increased in number and significance, which contributing
to the growing importance of the international role of human resource management (Black et al.,
2000).
It has been increasingly recognized that the effectiveness of human resource management
is one
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of the major factors to determine the success or failure of international business. There is also
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recognition that the quality of management in international operations seems to be more critical
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than in domestic operations (Black et al., 1999; Harris et al., 2003).
A growing shortage of managers with international exposure and experience is becoming an
increasing deficiency which affects a company's corporate efforts to expand abroad. Meanwhile,
the emerging markets require managers with distinctive competence and context-specific
knowledge of how to do business successfully in countries which are both culturally and
economically distantly. Thus, a larger role for IHRM activities in multinational corporations is
assigned (Black and Gregersen, 1999; Morgan et al., 2003).
The failure in international business arena is often costly both in human and financial terms, and
is proved to be more severe than that in domestic business. Companies need to take
precautionary measures to train and compensate human resources. This makes a full-fledged
IHRM necessary (Dowling et al., 1999).
HR strategy plays a significant role in the control and implementation in MNCs. It is not difficult to
determine which strategy to pursue for a MNC in an internationalizing environment. What
challenges is how to implement these strategies to be successful. Developing unique
organizational cultures is of far more importance than structural innovations in any global or
transnational strategy. To this extent, IHRM strategy becomes the crucial determinant of the
implementation and success of the MNC strategy (Bartlett and Ghoshal, 1998).
The complex nature of HRM problems involving in global environment is underestimated by some
companies. Poor management of human resource often results in business failures in
international business. Expatriate performance failure or underperformance continues to be
problematic for IHRM in many international corporations (Dowling et al. 1994).
Strategic IHRM
Under the global context, understanding how multinational Corporations (MNCs) can operate
more effectively becomes more important than ever. This links a MNC with the need of an
internationalized strategy which can direct its subsidiaries' operation not only in the home
country, but also in different parts of the world. There are several reasons to develop IHRM
strategy: 1) at any level, HRM is important to strategy implementation (Hamel & Prahalad, 1986;
Schuler and Jackson 2001); 2)major strategic components of multinational enterprises have a
major influence on international management issues, functions, and policies and
practices(Edstrom and Galbraith, 1977; Robers et al., 1998); 3) the attainment of the concerns and
goals of MNCs can be influenced by many of these characteristics of IHRM (Kobrin, 1992); 4) the
study of IHRM is challenging and important because there are a wide variety of factors making the
relationship between MNCs and IHRM complex(Bartlett and Goshal, 1998, 2000; Dowling et al.,
1999).
Schuler et al. (1993) define strategic IHRM as "human resource management issues, functions and
policies and practices that result from the strategic activities of multinational enterprises and that
impact the international concerns and goals of those enterprises"(P422). They developed a model
(see figure 1.) to examine the field of Strategic IHRM. The model shows the linkage of important
elements connected with IHRM, the importance of integration and differentiation of these
elements.
Exogenous Factors
Industry Characteristics
Country/ Regional Characteristics
SIHRM Issues
Interunit Linkages
-control/ variety
Internal Operations
- Local sensitivity
/ Strategic fit
SIHRM Function
Orientation
Resources
Location
SIHRM Policies/
Practices
Staffing
Appraising
Compensating
Developing
Endogenous Factors
Structure of International operations
Headquarters international orientation
Competitive Strategy
Experience in Managing International
Operations
Figure 1. Integrative framework of Strategic IHRM in MNCs
In the model, two major strategic components of MNCs that influence Strategic IHRM are pointed
out: interunit linkages and internal operations. Regarding interunit linkages, multinational
enterprises are concerned with how to effective operate their various world-wide operating units.
In particular, the key objectives appear to be how these operating units are to be differentiated
and integrated, controlled and coordinated. For strategic IHRM, the issues associated with
integrating and coordinating an MNC's units represent a major influence on strategic IHRM issues,
policies and practices (Schuler et al., 1993). With respect to internal operations, they require the
same attention as the linkage of the units, since they all influence MNC effectiveness. Each unit has
to be operated as effectively as possible relative to the competitive strategy of the MNC and the
unit itself (Schuler et al., 2002).
It has been argued that the success of strategic IHRM in a MNC is largely influenced by the quality
of it human resources and how effectively the corporation's employees are managed (Bartlett and
Goshal, 1992). There are three approaches which describe how multinational companies manage
the human resources and their overseas subsidiaries: ethnocentric, polycentric and geocentric.
Eethnocentric Approach
This practice usually happens in the early stage of a firm's internationalization involvement. With
this approach, strategic decisions are all made by the headquarters and the management
practices are transferred to the subsidiaries. Most important positions are filled by parent-country
nationals (PCNs).As a result, little autonomy is given to overseas operating units. During this stage,
home country expatriates exercise tight control.
Polycentric Approach
When the strategy becomes polycentric, there is a marked decline in the number of PCNs sending
abroad and their role changes into communication and coordination of strategic objectives. Hostcountry nationals (HCNs) are recruited to manage the operating units in their own country
because local managers know more about the local circumstances and are more familiar with local
business ethics. More autonomy is given to local managers to develop their own management
practices appropriate for the subsidiary.
Geocentric Approach
This approach relates most closely to the global or transnational strategy. Selection of employees
is based on competency rather than nationality. The best of headquarter and local practices are
combined by MNCs in order to come up with a global-implemented HR strategy.
Most MNCs take the IHRM strategy as a guideline and implement it locally. It is therefore the HR
managers' responsibilities to provide the proper international HR strategy to prepare and manage
the employees in their home country or an international assignment.
Hofstede (1984) defines culture as "collective programming of the mind which distinguishes the
members of one human group from another" (Hofstede, 1984: P21). It is important to understand
peoples' different cultural backgrounds to be able to identify the consequences for international
management. According to Medich (1995), culture is a crucial variable in international assignments
and should be included in international management practices (Medich, 1995). As it is claimed by
Briscoe and Schuler (2004) that "knowledge about and competency in working with country and
company cultures is the most important issue impacting the success of international business
activity" (Briscoe and Schuler, 2004: P114), understanding various values, beliefs and behaviors of
people are essential aspects of success for doing business internationally.
the society. High uncertainty indicates that the country has a low tolerance for uncertainty and
ambiguity. This will inevitably create a society which is rule-oriented, which institutes laws,
regulations and controls to diminish the amount of uncertainty (Hofstede, 1984).
Individualism versus collectivism refers to the degree where people prefer to take care of
themselves, and making their own decisions rather than being bound to groups or families. A
highly individualistic society consists of usually impersonal and loose relationships between
individuals, while a low individualistic society has more tight relationships between individuals,
hence referred to as collectivism by Hofstede (1984). The masculinity versus femininity dimension
describes if a culture are bound towards values that are seen as more similar to women's or men's
values. Masculinity is characterized by stereotype adjectives such as assertiveness and
competitive, while the femininity is characterized by modesty and sensitivity. A high masculinity
ranking indicates the country experiences a high degree of gender differences, usually favoring
men rather than women. The fifth and last cultural dimension is long-term versus short-term
orientation. A long-term oriented society emphasize on building a future oriented perspective in
contrast to the short-term oriented society which values the present and past (Hofstede, 2001).
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