What is International Human Resource Management?
International Human Resource Management (IHRM) is critical to the success of multinational corporations, but what is it exactly, how does it differ to domestic HRM and what are the major challenges facing international HR managers?
Read on for answers to each of these questions and more in our guide to IHRM.
What is International Human Resource Management?
International HRM is a term encompassing all the HR practices involved in managing a global workforce. International HR professionals are responsible for the following within a multinational corporation:
- Talent management including recruitment
- Expatriation and repatriation
- Training and developing
For clarity, a multinational corporation (MNC) is one with a business presence in various countries. Typically, the business will be managed from the ‘parent’ or home country in which it is headquartered, but it will operate from various international locations. Well-known multi-nationals include Apple, Amazon and Unilever, but smaller businesses can class themselves as MNCs if they have subsidiaries in two or more countries.
As MNCs have globally dispersed employees, they require International HRM specialists to deal with the specific requirements and considerations around recruiting, onboarding and managing them.
Domestic HRM vs International HRM: what’s the difference?
Put plainly, domestic HRM refers to the management of human resource that’s conducted locally in a business’s home country. International HRM refers to the management of human resource globally.
There are of course similarities between the two.
Both involve key HRM functions including talent management, training and development, performance appraisal and compensation. However, International HR Managers deal with unique issues arising from internationalisation which go beyond the ordinary scope of domestic HRM, for example, expatriating staff to a foreign country.
Generally speaking, IHRM involves a greater level of complexity as more factors are at play when managing staff beyond national borders.
Activities and considerations unique to IHRM include:
- Understanding the labour laws and cultural practices in each host country and ensuring compliance with these.
- Being more involved in staff’s personal lives if expatriating from the home country. For example, an Expatriate Manager might organise visas, housing, spousal support and/or childcare for employees moving overseas. This is extremely important in helping them settle in their host country and complete their expatriate assignment for the business.
- Determining appropriate international salaries that account for the cost of living in each host country while ensuring a level of parity with those in similar roles elsewhere. Depending on the location, various other rewards such as the provision of medical insurance might also be necessary.
- Facilitating effective communication for employees working with one another across different geographies and time zones.
What are the main objectives of HRM?
The Chartered Institute of Personnel and Development (CIPD) offers the following summary of HRM’s key objectives:
“Through the people professionals who work within it, the HR function helps an organisation deliver its corporate strategy and objectives by effectively recruiting and developing people and managing their performance.”
HRM objectives can be grouped into the following categories:
These HRM objectives are concerned with supporting employees to reach their personal goals. It may involve introducing initiatives around recognition and reward for good work, skills training, compensation or implementing policies to ensure a healthy work-life balance.
These objectives are aligned with the overarching business strategy and are therefore concerned with hiring the right talent, facilitating growth, driving profit and/or implementing policies. These are high-priority objectives for HR professionals.
These might relate to helping staff communicate effectively or collaborate across departments. Essentially functional objectives seek to ensure slick and effective ways of working across business functions.
These objectives are focused on upholding a business’s legal and ethical responsibilities to its employees and society at large. For example, HRM teams should ensure a company’s adherence to labour laws around equal opportunities and equal pay.
What are the main objectives of IHRM?
IHRM shares the same objectives outlined above for HRM generally.
However, the extra challenges that arise from managing a global workforce mean that International HR Managers will have more specific objectives centred on tackling these challenges and mitigating the risks inherent to IHRM.
- Recruiting and retaining staff with the specific skillset and global mindset to take on international assignments and meet the business’s strategic goals.
- Training and developing staff in both hard and soft skills. Cross-cultural and local market training is particularly important for expatriate workers who must acclimatise to their new environment.
- Compliance with international laws. International HR Managers must fully understand and comply with the labour and tax laws of each country it operates in. Failure to do so could result in major legal and/or financial penalties for the business.
What are the different approaches to IHRM?
Multinational corporations (MNCs) take different approaches to IHRM, starting with the way they choose to structure their HRM functions.
This might be:
A structure in which all HR administration is conducted centrally, typically from a business’s headquarters. According to Mercer, 50% of MNCs control HR centrally. Generally speaking, HR policies won’t vary significantly across subsidiaries.
HR administration is handled regionally, and policies and procedures reflect local differences. Mercer reports that 15% of MNCs follow a decentralised structure.
Finally, Mercer report that the hybrid structure is used by 35% of MNCs and involves a mix of both centralised and decentralised HR management.
MNCs also have different approaches to international recruitment which is typically influenced by the HR structure they have adopted.
For international roles, MNCs might choose to hire:
- Home country nationals: employees from the country where the business’s headquarters are located. These employees will be relocated overseas on an ‘expatriate assignment’.
- Host country nationals: employees from the country where the company has set up a subsidiary.
- Third country nationals: employees who work in either the home or host country for the company, but who aren’t nationals of either.
Multinational corporations may also choose to combine these approaches, adopting a ‘geocentric’ style of recruitment that involves hiring the most suitable candidate for the job, irrespective of their current location.
What are the main challenges of International HRM?
International expansion can offer huge opportunities for businesses looking to take advantage of the global economy. However, as we’ve flagged many times in this blog, managing staff beyond national borders comes with a unique set of challenges. Here are just a few:
- Failed expatriate assignments
According to research by INSEAD, failure rates for expatriate assignments span 10-50% across industries. Those relocating to emerging economies experience higher rates of failure compared to those who move to developed countries. Commonly cited reasons for failure include culture shock, isolation and domestic issues (i.e., spouses or children struggling to settle in the host country).
- Ethical dilemmas
There can be conflicts between the ethics of a company in its home country and the laws and practices of the host countries. For example, western companies have strict child labour laws but may also have factories in countries overseas where this is permitted. International HRM teams must therefore work with senior leaders to define the business’s ethical code and strategise ways to promote consistent behavioural standards across international offices.
- Navigating host countries’ laws and practices
As discussed, International HR Managers have their work cut out understanding and complying with the various local labour and tax laws of each host country. However, understanding the cultural practices and communication preferences within these countries (and ensuring expatriates share this knowledge) is extremely important. Doing so will minimise the risk of friction between employees and business partners.
For a deeper dive into contemporary IHRM challenges and how International HR Managers can overcome them, read: What are the major challenges of International HRM in 2022?
Become an expert in IHRM
Accredited by the CIPD and delivered from our triple accredited Business School, our online International HR masters course is designed to give HR professionals the skills and insights they need to successfully manage a global workforce.
Students get the chance to:
- Network with HR professionals around the world
- Hear from expatriates and learn from their experiences
- Explore case studies from multinational corporations
- Learn best practices for all aspects of IHRM
Interested? Find out more about our online International Human Resource Management masters today.