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International Human Resource Peter J. Dowling Chapter 1 - 7

International Human Resource (Universitas Kristen Satya Wacana)

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Chapter 1 Introduction
The field of international HRM has been characterized by three broad approaches:
Emphasizes cross-cultural management:
1. Examine human behavior within organizations from an international perspective.
2. Describe, compare and analyze HRM systems in various countries.
3. Focus on the aspect of HRM in multinational firms

HRM refers to those activities undertaken by an organization to effectively utilize its human
resources. This include:
1. Human resource planning
2. Staffing
3. Performance management
4. Training and development
5. Compensation and benefits
6. Industrial relations

Morgan: developed a model when HRM goes international. He presents IHRM on three
dimensions:
1. The broad human resource activities of procurement, allocation and utilization.
2. The national or country categories involved in international HRM activities:
- The host-country where a subsidiary may be located
- The home-country where the firm is headquartered
- ‘other’ countries that may be the source of labor, finance and other inputs.
3. The three categories of employees of an international firm;
- Host-country nationals (HCN)
- Parent-country nationals (PCN)
- Third-country nationals (TCN)

Expatriates: is an employee who is working and temporarily residing(women) in a foreign

country.

Dowling argues that the complexity of international HR can be attributed to six factors:
1. More HR activities
2. The need for a broader perspective
3. More involvement in employees personal lives
4. Changes in emphasis as the workforce mix of expatriates in local varies
5. Risk exposure
6. Broader external influence

In addition to complexity, there are four other variables that moderate differences between
domestic and international HRM:
1. The cultural environment
2. The industry with which the multinational is primarily involved
3. The extent of reliance of the multinational on its home-country domestic market.
4. The attitudes of senior management.

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Bhagat and McQuaid have noted: culture has often served simply as an synonym for nation
without any further conceptual grounding. In effect, national difference found in the
characteristics of organizations or their members have been interpreted as cultural difference. To
reduce it, culture needs to be defined a priori rather than post hoc and it should not be assumed
that national difference necessarily represents cultural differences.
Emic-etic distinction: another issue in cross-cultural research concern. Emic refers to culture
specific aspects of concepts or behaviour and etic refers to culture common aspects. The global
industry is not merely a collection of domestic industries but a series of linked domestic
industries in which the rivals compete against each other on a truly worldwide basis.

Laurent proposes that a truly international conception of human resource management would
require the following steps:
1. An explicit recognition by the parent organization that its own peculiar ways of managing
human resources reflect some assumptions and values of his home culture.
2. An explicit recognition by the parent organization that is peculiar ways are neither universally
better nor worse than other but are different and likely to exhibit strengths and weaknesses,
particularly abroad.
3. An explicit recognition but the parent organization that its foreign subsidiaries may have other
preferred way of managing people that are neither intrinsically better nor worse,but could
possibly be more effective locally.
4. A willingness form headquarters to not only acknowledge cultural difference, but also to take
active steps in order to make them discussable and therefore usable.
5. The building of a genuine belief by all parties involved that more creative and effective ways
of managing people could be developed as a result of cross-cultural learning.
United Nations Conference on Trade and Development (UNCTAD): annual survey of foreign
direct investments calculates what is refers to as an index of transnationality. The primary causes
of failure in multinationals ventures stem from a lack of understanding of the essential difference
in managing human resources, at all levels, in foreign environments.

What are the main similarities and difference between domestic and international HRM?
Similarities are: This include:
1. Human resource planning
2. Staffing
3. Performance management
4. Training and development
5. Compensation and benefits
6. Industrial relations
Different are:
1. More HR activities
2. The need for a broader perspective
3. More involvement in employees personal lives
4. Changes in emphasis as the workforce mix of expatriates in local varies
5. Risk exposure
6. Broader external influence
Inpatriate: vogue to signify the transfer of subsidiary staff into the parent country (headquarters)
operations.

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Chapter 2
The organizational context

Stage of internationalization:
1. Export
2. Sale subsidiary
3. International division
4. Global product/area division
Arlett and Ghoshal comment the matrix solution of a company. They isolate four contributing
factors:
1. Dual reporting, which leads to conflict and confusion
2. The proliferation of communication channels which creates informational logjams
3. Overlapping responsibilities, which produce turf battles and a loss of accountability
4. The barriers of distance, language, time and culture, which often make it very difficult for
managers to resolve conflicts and clarify confusion.
N-form: a model from Hedlund. This model builds upon his hierarchy concept and integrates
work form knowledge organization scholars. It takes away divisions, allows for communication
and dialogue between units and individuals.
Transnational: describes an organization form that is characterized by an interdependence of
resources and responsibilities across all business units regardless of national boundaries.
Three distinct groups:
- Centralized HR company: characterized by large, well-resourced hr department. The key
role is to establish and maintain control over world-wide top level management positions.
Companies operated within product-based or matrix structures.
- Decentralized HR company: characterized by devolving the HR responsibilities to a small
group who confined their role to senior management. Companies within this group operated
product or regional-based structures, with only one reporting using a matrix
- Transition company: is medium-sized corporate. Operate in a decentralized product-
based structure.

Organizational structures change due to:

1. Strain imposed by growth and geographical spread.
2. The need for improved coordination and control across business units.
3. The constraints imposed by host-government regulations on ownership and equity.
MNEs’ two major issues of structure
1. The extent to which key decisions are to be made at the parent-country headquarters or at
the subsidiary units (centralization versus decentralization).
2. The type or form of control exerted by the parent over the subsidiary unit.
Matrix is all but unmanageable because of:
1. Dual reporting, which leads to conflict and confusion.
2. The proliferation of communication channels which creates informational logjams.
3. Overlapping responsibilities, which produce turf battles and a loss of accountability.
4. The barriers of distance, language, time and culture, which often make it very difficult for
managers to resolve conflicts and clarify confusion.
The multi-centered networked organization
Management involves less hierarchical structure and features 5 dimensions:

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1. Delegation of decision-making authority to appropriate units and levels.

2. Geographical dispersal of key functions across units in different countries.
3. Delayering of organizational levels.
4. De-bureaucratization of formal procedures.
5. Differentiation of work, responsibility and authority across the networked subsidiaries

Chapter 3 The context of cross-border alliances and SMEs

Cross-border alliances: cooperative agreements between two or more firms from different
national
backgrounds, which are intended to benefit all partners. 
- Non-equity cross-border alliance: is an investment vehicle in which profits and other
responsibilities are assigned to each party according to a contract. (subcontracting,
outsourcing or offshoring, franchising, licensing and management contracts)
- Equity modes: foreign direct investor’s purchase of shares of an enterprise in country
other than its own. (subsidiaries, joint ventures, mergers and acquisitions)
Merger: is the result of an agreement between two companies to join their operations together.
Acquisition: occurs when one company buys another company with the interest of controlling
the activities of the combined operations.
Typical problems that arise in cross-border M&As involve the following:
- Within the first year of a merger, it is not uncommon for a company’s top management
level to lose up to 20% of its executives
- Personnel issues are often neglected (verwaarloosd)
- A high number fail or do not produce the intended results.

Merger and acquisition phases and human resource implications:

1. Pre-M&A phase: include a screening of alternative partners based on an analysis of their
strengths and weaknesses.
2. due diligence">Due diligence phase: focuses more in-depth on analysing the potential benefits
of the
merger.
3. Integration planning phase: based on the results of the due diligence phase, planning for the
new company is carried out
4. Implementation phase
Born globals: formed expressly with the international market in mind. In other words, the
number of
steps, or stages, along the path to multinational status varies from firm to firm, as doe the time
frame involved.
Aguilera and Dencker: suggest a strategic approach of HRM in M&A processes. They argue that
firms
should match their M&A strategy with their HR strategy while relying on three conceptual tools:
- Resources: are tangible assets, money and people and intangible assets as brand and
relationships.
- Processes: refer to activities that firms use to convert the resources into valuable goods.
- Values: the way in which employees thin about what they do and why they do it.
SME: can be defined using headcount, annual turnover or annual balance sheet total.

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The number of international joint ventures has increased over the last few decades. Four stages
are identified for the development:
- Formation
- Development
- Implementation
- Advancement
- beyond
The top ten barriers to access to international markets as follow:
1. Shortage of working capital to finance exports
2. Identifying foreign business opportunities
3. Limited information to local/analyse markets
4. Inability to contact potential overseas customers
5. Obtaining reliable foreign representation
6. Lack of managerial time to deal with internationalization
7. Inadequate quantity of and/or untrained personnel for internationalization
8. Difficulty in managing competitor’s prices
9. Lack of home government assistance
10. Excessive transportation/insurance costs
The main reasons for engaging in an IJV
1. To gain knowledge and to transfer that knowledge
2. Host government insistence
3. Increased economies of scale
4. To gain local knowledge
5. To obtain vital raw materials
6. To spread the risks (e.g. share financial risks)
7. To improve competitive advantage in the face of increasing global competition
8. Provide a cost effective and efficient response forced by the globalization of markets

Chapter 4
Staffing international operations and sustaining
The IHMR literature uses four terms to describe MNE approaches to managing and staffing their
subsidiaries:
- Ethnocentric: few foreign subsidiaries have any autonomy and strategic decisions are
made at headquarters. Key position in domestic and foreign operations are held by
headquarters personnel. Subsidiaries are managed by staff from the home country
(PCN).
The disadvantages are:
a. It limits the promotion opportunities of HCN, which may lead to reduced productivity
and increased turnover among that group.
b. The adaption of expariate managers to host countries often takes long.
c. When PCN and HCN compensation package are compared, the often considerable
income gap in favour of PCNs is often viewed by HCNs as unjustified.
d. The changes for a expatriates effect sensitivity to the needs and expectations of their
host country subordinates.
- Polycentric: the MNE treats each subsidiary as a district national entity with some
decisions making autonomy. Subsidiaries are usually managed by local nationals, who are

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seldom promoted the positions at headquarters, PCN are rarely transferred to foreign
subsidiary operations.
The advantages are:
a. Eliminates language barriers
b. Allows a multinational company to take a lower profile in sensitive political situations
c. HCN is less expensive
d. It gives continuity to the management of foreign subsidiaries.
The disadvantages are:
a. Bridging a cap between HCN subsidiary and PCN managers at corporate
headquarters.
b. Career paths of HCN and PCN managers.
- Geocentric: the MNE is taking a global approach to its operations, recognizing that each
part makes a unique contribution with its unique competence. The advantages are:
a. It enables a multinational firm to develop an international executive team
b. It overcomes the ‘federation’ drawback of the polycentric approach
c. It support cooperation and resources sharing across units.
The disadvantages are:
a. Host governments want a high number of their citizens employed and may utilize
immigration controls in order to force HCN employment if enough people and
adequate skills are available, or require training of a HCN over a specified period to
replace a foreign national.
b. Documentation of hiring foreign personnel is time consuming
c. It can be expensive to implement.
d. It requires a longer leas time to implement.
- Regiocentric : it utilized a wider pool of managers but in a limited way. You stay in the
region, for example the regions Europe, America and Asia. The advantages are:
a. It allows interaction between executives transferred to regional headquarters from
subsidiaries in the region and PCNs posted to the regional headquarters.
b. It reflects some sensitivity to local conditions
c. It can be a way for multinational to gradually move from a purely ethnocentric or
polycentric approach to a geocentric approach.
The disadvantages are:
a. It can produce federalism
b. It only moves barrier to the regional level.
Staffing choices:
- Context specificities (cultural, institutional, staff availability and type of industry)
- Local unit specificities (establishment method, strategic role and importance, need for
control and locus of decision)
- IHRM practices (selection, training and development, compensation, career
management)
- Company specificities (MNE structure and strategy, international experience, corporate
governance and organizational culture)
Reasons for international assignments:
- Position filling
- Management development
- Organization development

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Types of international assignments:

- Short term: up to three months.
- Extended: up to one year.
- Long term: varies from one to five years.
Differences between traditional and short-term assignments

Rotational assignments: people go to a foreign country to work there, for short set period with a
break.
Contractual assignments: used in situations where employees with specific skills vital to an
international project are assigned for a limited duration of six months to twelve.
Virtual assignments: where the employee does not relocate to a host location but manages, from
home-base, international responsibilities for a part of the organization in another country.
The roles of an expatriate: pg 69
- Agent of direct control
- Agent of socialization
- Network builders
- Boundary spanners
- Language nodes
Collings and scullion have identified the following key drivers for recruiting inpartriate
managers:
- Cross-cultural sustainability
- Family requirements
b. Situation
- Country/cultural requirements
- Language
- MNE requirements

Mendenhall and Oddou propose a four-dimensional approach that attempts to link specific
behavioural tendencies to probable overseas performance:
- The self-oriented dimension: the degree to which the expatriate expresses an adaptive
concern for self-preservation, self-enjoyment and mental hygiene.
- The perceptual dimension: the expertise the expatriate possesses in accurately
understanding why host nationals behave the way they do
- The others-oriented dimension: the degree to which the expatriate is concerned about
host-national co-workers and desire to affiliate with them.
- The cultural-toughness dimension: a mediating variable that recognizes that
acculturation is affected by the degree to which the culture of the host country is
incongruent with that of the home country.

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Inter-company working: here the multinational attempts to place the accompanying spouse or
partner in a suitable job with another multinational.
Job-hunting assistance: here the multinational provides spouse/partner assistance with the
employment search in the host country.
Intra-company employment: this is perhaps a logical but often a somewhat difficult solution. It
means sending the couple to the same foreign facility, perhaps the same department.

On-assignment career support: assist spouses to maintain and even improve career skills.
4 dimensions for successful expatriate selection
1. Self-oriented
Expresses adaptive concern for self-preservation, self-enjoyment, mental hygiene.
2. Perceptual
Accurately understands why host nationals behave the way they do.
3. Others-oriented
Cares about host national co-workers and affiliates with them.
4. Cultural-toughness
Able to handle the degree to which the culture of the host country is incongruent with that of the
home country.
Family-friendly policies
• Inter-company networking
• Job-hunting assistance
• Intra-company employment
• On-assignment career support

Chapter 6 International training and development

Studies indicate that the essential components of pre-departure training programs that contribute
to a smooth transition to a foreign location include:
- Cultural awareness. The two determining factors were the degree of interaction required
in the host culture and the similarity between the individual’s native culture ant their
own culture. Essentially Tung’model argued that:
a. If the expected interaction between the individual and members of the host culture
was low, and the degree of dissimilarity between the individual’s native culture and
the host culture was low, then training should focus on task- and job-related issues
rather than culture related issues.
b. If there was a high level of expected interaction with host nationals and a large
dissimilarity between the cultures, then training should focus on cross-cultural skill
development as well as on the new task.

The limitation of the model is that it does not assist the user to determine which specific
training method to use or what might constitute more of less rigorous training. More than a
decade later, Tung revisited her earlier work and reported that her original recommendations
held, though some changes:
a. Training should be more orientated to life-long learning than one-shot programs with an
area-specific focus.
b. More emphasis on provision of foreign language training
c. Be emphasis on the level of communication competence

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d. Cross-cultural training assists in managing diversity

e. The preview of the expatriate position should be realistic
- Preliminary visits
- Language instructions
- Assistance with practical day to day matters

Chapter7
International compensation
Base salary: in a domestic context, base salary denotes the amount of cash compensation serving
as a benchmark for other compensation elements.
Cost-of-living allowance (COLA): involves a payment to compensate for differences in
expenditures
between the home country and the foreign country.
Housing allowance: implies that employees should be entitled to maintain their home-country
living standards.
Home leave allowances: give employees the change to go home as a trip. Just to see family.
Education allowance: for expatriates’ children are also an integral part of any international
compensation policy.
Relocation allowances: usually cover moving, shipping and storage charges: temporary living
expenses; subsidies regarding appliance or car purchases.
Spouse assistance: to help guard against or offset income lost by an expatriate’s spouse as a
result of relocating abroad.
There are two main options in the area of international compensation:
- Going rate approach
The base salary for the international transfer is linked to the salary structure in the host country.
Based on local market rates. Advantages are:
a. Equality with local nationals
b. Simplicity
c. Identification with host country
d. Equity amongst different nationalities
Disadvantages are:
a. Variation between assignments for same employee
b. Variation between expatriates of same nationality in different countries
c. Potential re-entry problems
- Balance sheet approach
The basic objective is to ‘keep the expatriate whole’ through maintenance of home-country living
standard plus a financial inducement to make the package attractive.
a. Basic objective is maintenance of home-country living standard plus financial inducement
b. Home-country pay and benefit are the foundations of this approach
c. Adjustments to home package to balance additional expenditure in host country
d. Most common system in usage by multinational firms
There are four major categories by expatriates in the approach:
1. Goods and services: home-country outlays for item such as food, personal care, clothing
2. Housing
3. Income taxes: parent-country and host-country income taxes
4. Reserve: contributions to savings, payments for benefits, pensions.

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Advantages are:
a. Equity (between assignments/between expatriates of the same nationality)
b. Facilitates expatriates re-entry
c. Easy to communicate with employees
Disadvantages are:
a. Can result in great disparities
b. Can be quite complex to administer
Employer
- Compatibility
- Competitiveness: How do we attract employees?
- Cost effectiveness: reasonable of the cost (bijv. Administration system)
Employee
- Financial Protection: benefits, pension
- Expansion
International Compensation program
- Base salary: the amount of cash compensation serving as a benchmark for other
compensation elements.
- Foreign service inducement / hardship premium
- Allowances: extra money related on the costs.
- Benefits: medical insurance costs
Taxation
- Tax equalization: pay no extra money in de foreign country. It is the same tax price as in their
own country.
- Tax protection: possible windfall. The employee pays up to the amount of taxes he or she
would pay on compensation in the home country.
- Ad Hoc and Laissez faire.

Chapter 8
Re-entry and career issues
Repatriation activities and practices
Pre-departure
1. Sponsored assigned
2. Communication protocols established
3. Web and media contacts for context
4. Pre-departure training and orientation
During assignment:
1. Home leave
2. Work-related information exchanges
3. Ongoing communication with sponsor
4. Systematic pre-return orientation

Upon return:
1. New assignment
2. Organizational reconnection
3. Assistance with non-work factors
4. Rituals or ceremonies to share experience

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Factors influencing repatriate adjustment:

- Job-related factors
a. Career anxiety
- loss of visibility and isolation
- no post-assignment guarantee
- workplace changed
b. work adjustment
- re-entry position
- employment relationship
- devaluing experience
c. coping with new role demands
d. loss of status and pay
- social factors
a. family adjustment
b. social networks
c. effect on partner’s career
a well-designed repatriation process is important in achieving these objectives, for three main
reasons:
- Staff availability
- Return on investment
- Knowledge transfer
Topics covered by a repatriation program:
- Preparation, physical relocation and transition information (what the company will help
with)
- Financial and tax assistance
- Re-entry position and career path assistance
- Reverse culture shock
- School systems and children’s education and adaptation
- Workplace changes
- Stress management, communication-related training
- Establishing networking opportunities
- Help in forming a new social contracts

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