The environment in which business competes is rapidly becoming globalized. More and more companies are entering international markets by exporting their products overseas, building plants in other countries, and entering into alliances with foreign companies. Global competition is driving changes in organizations throughout the world. Companies are attempting to gain a competitive advantage, which can be provided by international expansion. Deciding whether to enter foreign markets and whether to develop plants or other facilities in other countries is no simple matter and many human resource issues surface. (Noe, Hollenbeck, Gerhart, and Wright; 534)
Doing business globally requires that adaptations be made to reflect cultural and other factors that differ from country to country and from continent to continent. The nature and stability of political systems vary in character and stability, with contracts suddenly becoming unenforceable because of internal political factors. Human resource regulations and laws vary among countries in character and detail. In many countries in Western Europe, laws on labor unions and employment make it difficult to reduce the number of workers because required payments to ex-employees can be very high. Equal employment legislation exists to varying degrees. In some countries, laws address issues such as employment discrimination and sexual harassment.
Cultural forces represent another important concern affecting international human resource management. Culture is composed of the societal forces affecting the values, beliefs, and actions of a distinct group of people. (Mathis & Jackson, 171) Cultural differences certainly exist between nations, but also between countries. Getting individuals from different ethic or tribal backgrounds to work together may be very difficult in some parts of the world. Culture is important to human resources for two reasons. It determines the other factors political-legal, economic, and education-human capital factors. Culture affects human capital, because if education is greatly valued by culture, then members of the community try to increase their human capital. (Noe, Hollenbeck, Gerhart, and Wright; 537) Economic conditions vary also from country to country. Many lesser-developed nations are receptive to foreign investment in order to create jobs for their growing populations. In many developed countries, especially in Europe, unemployment has grown, but employment restrictions and wage levels remain high.
The internationalization of U.S. corporations has grown than the internationalization of human resource management. International human resource management differs from domestic human resource management in several ways. In the first place, it places a greater emphasis on functions and activities such as relocation, orientation, and translation services to help employees adapt to a new and different environment outside their own country. Assistance with tax matters, baking, investment management, home rental while on assignment, and coordination of home visits is also usually provided by the human resource department. Larger corporations have a full-time staff of human resource managers devoted to assisting globalization. For example, McDonalds has a team of HR directors who travel around the world to help country managers stay updated on international concerns, policies, and programs. The human resource department in an overseas unit must be particularly responsive to the cultural, political, and legal environments. Companies such as Shell, Xerox, Levi Strauss, Digital, and Honeywell have made a special effort to create codes of conduct for employees throughout the world to make certain that standards of ethical and legal behavior are known and understood. (Sherman, Bohlander, and Snell; 633)
A growing number of organizations that operate only within one country are recognizing that they must change and develop a more international perspective. Organizations may pass through three stages that are import-export (national) companies, multinational enterprises (MNE), and global organizations. National companies do not become global companies immediately. Involvement in international HRM depends greatly on a company’s phase of globalization. Import-export firms. Firms in the first phase of globalization simply move products across national boundaries. The firm does not employ people in other countries, except a few managers responsible for negotiating business agreements. These agreements usually involve buying or selling complete products or services. Import-export firms need to understand their trading partners’ cultures and usually must overcome communication barriers to negotiate agreements. Negotiations are usually done by expatriate representatives, but expatriates are not employed as extensively by import-export firms as by multinational enterprises. HR policies and practices remain relatively unchanged from the company’s traditional home-base practices. (HR Magazine,06-01-1995)
Multinational enterprises (MNEs). Firms in the second phase of globalization have strategic corporate units located in foreign countries. Part of the firm’s goods or services may be produced in one country, then possibly moved to another country for additional assembly, and ultimately distributed to other countries where they are sold by employees of the firm. MNEs typically make extensive use of expatriate managers who are sent from headquarters to oversee foreign operations. Expatriate managers play important strategic roles. They coordinate between subsidiaries and headquarters, implement strategy, ensure the quality and effectiveness of organizational control systems, and manage global information systems. They also gain expertise in international business skills that are critical to ensuring that top executive positions are filled by competent replacements with the necessary international experience and perspectives. Multinational enterprises hiring workers in foreign countries must create and administer HR practices adapted to each country. In addition to hiring, some of the most significant HR issues for MNEs are training a foreign workforce, complying with the host country’s employment laws, monitoring labor costs, selecting expatriates, and helping them and their families succeed in the new assignment. (HR Magazine, 06-01-1995)
Global firms. Firms in the final phase of globalization have strategic corporate units in multiple countries that interact with both headquarters and each other. Specialized functions may be performed in different countries – for example, engineering in one country, research in another country and production in yet another. People and products are moved extensively across national boundaries to meet company demands. Global firms make moderate use of expatriate managers. Other professional employees may also be asked to relocate. Expatriate managers provide leadership and continuity in the various divisions. These foreign assignments help the managers in their career development, with one or more foreign assignments considered essential for progression to higher levels of leadership.
When organizations expand to other countries, they must develop operations and staff the operations in those countries. Large multinational enterprises and global organizations typically employ individuals from throughout the world. International employees can be placed in different classifications. An expatriate is an employee working in a unit or plant that is not a citizen of the country in which the unit or plant is located but is a citizen of the country in which the organization is headquartered. A host-country national is an employee working in a unit or plant that is a citizen of the country in which the unit or plant is located but where the unit or plant is operated by an organization headquartered in another country. A third-country national is a citizen of one country, working in a second country, and employed by an organization headquartered in a third country.
Each of these individuals present some unique human resource management challenges. Each is a citizen of a different country, different tax laws and other factors applied. Human resource professionals have to be knowledgeable about the laws and customs of each country. They must establish appropriate payroll and record-keeping procedures to ensure compliance with varying regulations and requirements. Many MNEs use expatriates to ensure that foreign operations are linked effectively with the parent corporations. Expatriates are used to develop international capabilities within an organization. Experienced expatriates can provide great talent that can be tapped as the organization expands its operations more broadly into more countries. Using host-country nationals is important if the organization wants to establish clearly that it is making a commitment to the host country and not just setting up a foreign operation. (Mathis & Jackson, 173) Host-country nationals often know the culture, the politics, the laws, and how business is done better than an outsider would. The use of third-country nationals is a way to emphasize the global approach that is being taken. These individuals are used to handle responsibilities throughout a continent or region.
Employee recruitment in other countries is subject to more government regulations than it is in the United States. Regulations range from those that cover procedures for recruiting employees to those that govern the employment of foreign labor or require the employment of the physically disabled, war veterans, or displaced persons. (Sherman, Bohlander, and Snell; p. 634) All countries have work-permit or visa restrictions that apply to foreigners. A work permit is a document issued by a government that grants the authority to foreigners to find employment in that country. Foreign workers invited to come to perform needed labor are the guest workers. The employment of foreigners may involve lower direct labor costs, but indirect cost such as language training, health services, recruitment, transportation and so on may be substantial.
The selection process for an international assignment should provide a true picture of the life, work, and culture to which the employee may be sent. Human resource managers should prepare a comprehensive description of the job to be done. The description should note responsibilities that would be unusual in home country. The responsibilities might include negotiating with public officials; interpreting local work codes; and responding to ethical, moral, and personal issues such as religious prohibitions and personal freedoms. The selection process should emphasize different employment factors, depending on the extent that one would have with the local culture and the degree to which the foreign environment differs from the home environment. If a candidate for expatriation is willing to live and work in a foreign environment, and indication of his or her tolerance of cultural differences should be obtained. The finding employees who can meet the demands of working in a foreign environment is one of the toughest jobs for many organizations. Many companies have been hesitant to send women on overseas assignments. Executives assume that women do not want international assignments, but the reality is that the rate is equal to that of men. It is also important that companies are increasingly using transnational teams to conduct international business. These teams are especially useful for performing tasks that the firm as a whole is not yet structured to accomplish. They might be used to transcend the existing organizational structure to customize a strategy for different geographic regions, transfer technology form one part of the world to another, and communicate between headquarters and subsidiaries in different countries. The fundamental task in forming a transnational team is assembling the right group of people who can work together effectively to accomplish the goals of the team. Many companies try to build variety into their teams in order to maximize responsiveness to the special needs of different countries.
Employees that work in international area face special activities as orientation and training, continuing employee development, and readjustment training and development. The orientation and training that expatriates and their families receive before the international assignment begins include work adjustment, interaction adjustment and general adjustment such as language, culture, history, and living conditions. Career planning and continued involvement of expatriates in corporate employee development activities are essential. One of the greatest deterrents to accepting foreign assignments is employees concern that they will be out of sight and out of mind. If businesses are to be managed effectively in an international setting, managers need to be educated and trained in global management skills. For example, Levi Strauss has identified the following six attributes of the global manager. Those are the ability to seize strategic opportunities; ability to manage highly decentralized organizations; awareness of global issues; sensitivity to issues to diversity; competence in interpersonal relations; and skill in building community. (Sherman, Bohlander, and Snell; 640)
Organizations with employees in many different countries face some special compensation pressures. Variations in laws, living costs, tax policies, and other factors all must be considered in establishing the compensation for expatriate managers and professionals. Even the value of the U.S. dollar can be tracked and adjustments made as the dollar rises or falls in relation to currency rates in other countries. Add to all of these concerns the need to compensate employees for the costs of housing, schooling of children, and yearly transportation home for themselves and their family members. Many multinational firms have compensation programs that use the balance-sheet approach that provides international employees with a compensation package that equalizes cost differences between the international assignment and the same assignment in the home country. Unlike the balance-sheet approach, a global market approach to compensation requires that the international assignment must be viewed as continual though the assignment may take the employee to different countries for differing lengths of time.
The nature of employee and labor relations varies form country to country. When international operations are considered, concerns related to health safety, and security must be evaluated. It is important to understand the applicable labor-management laws, regulations, and practices before commencing operations in foreign countries. With more and more expatriates working internationally, especially in the less-developed countries, health and safety issues are arising and addressing these issues is part of the human resource role. Another consideration is provision of emergency evacuation services. Many global firms purchase coverage for their international employees from an organization that provides emergency services, such as International SOS, Global Assistance Network, or U.S. Assist.
The role of unions differs from the unions in the United Stated to the unions in other countries. It depends on many factors, such as the level of per capita, mobility between management and labor, homogeneity of labor and level of employment. Labor relations in Europe differ form those in the United States in certain characteristics: In Europe, organizations negotiate the agreement with the union at the national level though the employer association representing their particular industry. Unions in many European countries have more political power than those in the U.S., with the result that when employers deal with the union they are dealing indirectly with the government. There is a greater tendency in Europe for salaried employees to be unionized.
The global expansion of IHRIM is in direct support of IHRIMs mission statement:
To be, internationally, the leading association enabling customers to achieve strategic objective through the integration of information technology and human resource management. (IHRIN, 05-29-2000)
Cherrington, David J., Laura Zaugg Middleton. An Introduction To Global Business Issues. http://www.elibrary.com
HR Magazine. 06-01-1995
Mathis, Robert L., John H. Jackson. Human Resource Management. Essential Perspectives. 1st edition. South-Western College Publishing. Cincinnati, 1999.
Noe, Raymond A., John R. Hollenbeck, Barry Gerhart, and Patrick M. Wright. Human Resource Management. Gaining A Competitive Advantage. 3rd edition. Irwin McGraw-Hull. Boston, 2000.
Sherman, Arthur, George Bohlander, and Scott Snell. Managing Human Resources. 11th edition. South-Western College Publishing. Cincinnati, 1998.