International human resource management is about the worldwide or global management of human resources. (Schuler et al. , 2009). It can be referred to as the activities undertaken by an organization to effectively utilize its human resources. (Dowling, et al. 2008). Many organisations now compete on a worldwide scale. The vast range of technological developments available to business in modern times has changed the interface of business. As we move towards a more knowledge-based global economy, the importance on human resources has increased significantly in order to survive in an unstable economy.
To operate in an international environment, human resources departments engage in a number of activities that would not be necessary in a domestic environment such as international taxation, relocation, administration services for expatriates; host government relations and translation services (Dowling et al. 2009). Human resources are the largest element of operating costs for a company, which is why many multinational companies operate in low-wage economies.
Until recently, the core focus of international human resource management (IHRM) was how to best manage human resources in the multinational enterprise, however it now incorporates two more perspectives; cross-cultural human resource management (HRM) and comparative HRM. HRM organisational processes vary from country to country. Even managers within the same firm will have different approaches to managing their own teams. Each unit within a company will function in a different way to other units.
Countries have their own approaches to how HRM operates within cultural, institutional or regional specifics which is the very reason why IHRM is much more difficult than the HRM in one country considering most aspects of management are local. Today, as organisations become globalised, there are increasing challenges and opportunities presented to IHRM, with developments such as the global financial crisis, growth from emerging markets (e. g. China, India), foreign investment, cross-border alliances and the increasing trend in business to outsource to new economies.
As organisations become globalised, there is an increasing challenge to use expatriates on international assignments to complete critical tasks (Brewster, 1998). While operating during times of growth, multinational companies (MNCs) have an educational advantage as they are tied to systems in multiple nations. They therefore experience diversity in business practices, which increases their organisational scope and knowledge (Edwards, as cited by Sparrow 2009). MNCs are able to observe practices in operation in one country and transfer new knowledge to others.
They are able to make predictions based on product margins from other areas. There is a hierarchy of economies according to their economic performance, with the country at the top viewed as the model that firms around the globe try to imitate and can be referred to as the concept of ‘dominance effects’ (Smith & Meiksins, 1995 as cited by Sparrow 2009). During the 1980s, many MNCs looked to Japan as a strong economy, which led to interest among companies from other nations to emulate practices of the many successful companies in Japan.
MNCs from less economically dominant areas of the globe are likely to search for new operating models as they move towards internationalising. Less dominant countries are open to change and are eager to learn the ways of dominant economies. China has recently undergone dramatic economic reform and is eager to learn from economically dominant countries to catch up with Western enterprise. A study of six firms was conducted which revealed that the UK is used as a base for the accumulation of knowledge concerning international management and human resource management.
In all six companies, Chinese managers were given assignments in Britain to expose them to Western managerial operations (Zhang et al. 2006 as cited by Sparrow 2009). In many multinational companies, it appears that the most used practices are those adopted by the headquarters country. The advantages include mutual learning so that effective practices learnt in one location can be spread across the world, without the costly and often ineffective need for each subsidiary to reinvent the wheel.
The alignment of global systems will facilitate an internal labour market and make expatriation and other forms of cross border movement of personnel easier. (Harzing 2011). During the global financial crisis (GFC), many companies were forced to downsize. However, some companies were able to share good news with their employees such as giving pay rises and bonuses. To boost staff morale, Cathay Pacific Airways increased salaries by an average of 2 per cent in 2009 despite the airline industry being hit the hardest during the GFC.
Downturns such as this can provide an opportunity for companies to review and reflect on efficiency levels and other cost saving measures (aside from dismissing employees). (Schermerhorn et al. 2010. pp. 110 – 111). Teleworking presents advantages in terms of efficiency. Hewlett Packard and American Express researched their call centres and discovered their work-at-home staff got through 20 per cent more calls, plus they experienced an increase in customer satisfaction as employees working at home are typically more focussed on the task at hand (Sheedy, 2010).
Teleworking can be a useful tool during economic recession as employees retain their jobs, while gaining greater work satisfaction by working from home, improving work/life balance contributing to a prevention of high staff turnover. Bevis England (2010), Director of Telework New Zealand and facilitator for the Telework Australia initiative (England 2010, as cited by Sheedy, 2010) suggests that “if you’ve got five people who can now share four work spaces you’re going to save $10,000 to $15,000 a year.
And you’re going to avoid absenteeism- just because it’s raining or you feel a little bit off colour, it doesn’t mean you can’t work. ” Telework opens doors for a wider talent pool from which to hire as high skilled employees may be sourced from other regions. Hyundai, for example, is aware that in the new global economy, competition and resources are multinational. This MNC has invested in manufacturing plants in the US, India and China and has research facilities in the US, Japan and Europe. Hyundai is determined to produce and provide cars that satisfy the needs of its consumers in the global market.
During 2009, Hyundai won the Car of the Year award at the North American International Auto Show. Hyundai is well poised to benefit from the recent economical difficulty experienced by major United States car manufacturers such as General Motors, Ford and Chrysler, since the economic downturn caused by the global financial crisis. General Motors, for example, had to be rescued from bankruptcy via a massive US government bailout, with a condition of the financial rescue package being that it would emerge with fewer brands, plants and workers. Hyundai management will be doing its best to capitalise n this new opportunity in the US market, in order to further its globalisation aims. (Schermerhorn et al. 2010. pp. 110 – 111). Dubai airline, Emirates navigated its way through the GFC by allowing staff to take unpaid leave and by repositioning aircraft to higher demand routes. Emirates also delayed the delivery of several new Boeing 777 aircraft. The airline rearranged its priorities such as pre-delivery payments of aircraft and financing a cabin refurbishment plan. Deferring Boeing 777 aircraft meant that the airline was given more time to arrange it’s financing.
At the same time, Singapore Airlines was reducing its fleet while Emirates was increasing the number of its aircraft. Many of the worlds largest airlines cut capacity and parked aeroplanes due to the economic downturn, but the Arab Gulf carriers instead united to build up their networks to prepare for the recovery. Sheik Ahmed bin Saeed, CEO of Emirates Airline, likened his company to a surfer waiting for the next big swell – even though the sea is flat (The National Newspaper, 2009 as cited by Harzing & Pinnington, 2011).
Global economic downturn can result in global competition which can encourage increasing levels of coordination of resources, equipment, finance and people (Sparrow et al. 2009). It is important to coordinate pricing, services and product support worldwide, since multinational consumers are able to compare prices in different regions. Through global trade, traditional and domestic business boundaries become increasingly permeable, accelerating the rate of convergence, business practices and firms face more risk in becoming decoupled from familiar settings, thus challenging national mindset and assumptions. Harzing, 2011). Company’s are less likely to invest in human capital during economic downturn, however, for some companies, with recession comes opportunities to strengthen and restructure management to position themselves for the rebound. Companies can utilize unproductive times to provide employees with in-house professional development and technical training programs, which serves both to sharpen skills and to preserve morale during tough times. Companies can take advantage of hiring talented employees caught in downsizing at weaker enterprises, which augments the company’s human capital base for long-term growth.
Redefining and expanding spheres of authority and responsibility of star employees, which permits assessment of the leadership potential of individuals who may eventually occupy executive positions in the organization. (Bartlett 2009). There is a clear distinction between human resource management and international human resource management. In regard to the latter, staff are often moved across international borders on temporary assignment. Staff who reside and work in foreign countries are referred to as expatriates, or parent country nationals (PCNs).
During economic downturn, crisis is often experienced by MNCs and sometimes includes premature return of expatriates. Companies need to improve their management of their expatriates before, during and after international assignments (Chew 2004). In addition to employing a competent local workforce, global success also comes from the work of expatriates. The management of international human resources is increasingly being acknowledged as a major determinant of success or failure in business (Dowling 1999 as cited by Chung 2004). The analogy of supply and demand applies to human resources as well as business.
Economic recessions present great challenge to the human resource department of MNCs. Companies are often forced to downsize by offering redundancy packages, some of which are mandatory. In the recent global financial crisis, Otis, an international elevator company, restructured their workforce in the attempt to retain as many employees as possible. Otis managers temporarily located willing workers to overseas and interstate assignments, where workers were required. The company also restructured the employee compensation (mostly by decreasing) to minimize financial losses.
Employees who proved their worth were retained. The employees had to accept compensation-related compromises while maintaining the same or even higher level of efficiency and productivity. The remaining employees got the opportunity to handle a variety of tasks that further sharpened their skills and were introduced to various leadership roles, as a result the overall quality of talent increased. At the same time, those who were out of job lost this opportunity to hone their skills in a new challenging environment.
A study by Accenture, after to GFC, found that more than two-thirds of executives were deeply concerned about not being able to recruit and retain the best talent. In today’s global and highly competitive economy, the war for talent is global, not local. The survey of more than 850 top executives from the U. S, UK, Italy, France, Germany, Spain, Japan and China found worries about talent management were growing, with 67 per cent this year putting it second only behind competition as the key threat, up from 60 per cent last year (Sharma 2009).
Instead of fearing of financial losses, corporates focused on improving the quality of their employees’ skills. The demand for talent in the market will never cease and retention will always be a challenge for MNCs. Economic downturn affects many industries and occupations. Workers in financial services, manufacturing, and retail can experience massive job cuts. Managers in comfortable positions at financially successful companies also confront growing uncertainty as the downturn spread quickly. Even rising stars at technology companies accustomed to poaching by rival firms are now hedging their bets and focusing on immediate job security. Bartlett, 2009). Human resource management can become a target of optional spending cuts as companies struggle to boost flagging earnings. HR managers face a weaker imperative to retain talented employees, whose bargaining power and job mobility have diminished in the slack labour market. (Bartlett, 2009). IHRM strategies should look to the future and consider long term prospects. Planning, training and recruitment will give companies the ability to equip themselves with talent to better position itself during times of economic growth and recession.