Two Main Differences Between Domestic And International HRM
There are two major differences between domestic HRM and IHRM. First, IHRM entails working in a complex environment with many employees of different cultures, nationalities, and geographical locations. Second, IHRM works with employees from different nationalities. On this note, it follows many diverse rules, stringent employment policies, and regulations that involve labor rights, taxation, international transfers, protocols, work permits, and family related issues among others. On the other hand, domestic HRM concentrates on local regulations, laws, and normal employment-related issues.
IHRM focuses on human resource management at the international level among MNCs (Dowling, Festing and Engle, 2013). It must show how MNCs manage geographically located employees in order to leverage their human resources capabilities for achieving competitive advantage globally. Globalization has also affected HR practices. Specifically, it has created complexity in employee management and new issues in managing a group of employees, who are all over the world (Dowling et al., 2013). Based on such new developments, IHRM must play a significant role in coordinating and controlling human resource practices in subsidiaries and linking them with the parent company practices. A lack of understanding employment practices in other countries has led to massive failure in some multinational corporations. It is imperative for MNCs to recognize that HR practices that work at the domestic level may not necessarily be applicable in foreign environments. A number of factors have contributed to the complexity of the IHRM practices as compared to domestic HRM.
IHRM must address all employee related challenges within the international context. HR managers must establish different management channels and practices to cater for such diverse nationalities. The HR managers must understand different issues in different subsidiaries that relate to taxes, compensation, cultures, and work practices among others. Employees, who undertake foreign assignments, want their employers to support them with family issues and relocation and provide cross-cultural orientation and training. In addition, employers may also make schooling arrangement for children in both foreign and local schools. These are support services, which some employers may not provide to their local employees.
Employees also face different risks in their international duties. Safety and health of employees in foreign subsidiaries have becoming critical sources of concern for employers. Employers must ensure that both local and international employees are safe from potential dangers like terrorism and kidnapping.
MNCs must also acknowledge that international operations have serious financial and human resource impacts in cases of failures. For instance, it is costly for MNCs to find the right employees for overseas assignments. This results in high costs of recruitment and training.
The focus of international HRM management is on many external issues as compared to domestic HRM. For instance, firms must ensure that they comply with diverse government laws, local religious practices, specific codes of conducts, language use, and staffing requirements in foreign countries among others. In most cases, governments would want their citizens to have key positions in multinational firms. This could be a legal obligation, which MNCs must observe.
IHRM focuses on different issues in the HRM practices. On the other hand, domestic management of human resources is simple because of uniformity of issues under the same laws and regulations of the parent country. Overall, IHRM is complex and demands greater attention because of diverse HRM factors.
Two Factors That Drive Standardization Of HRM Practices
Many HR managers face a serious challenge related to managing their globally diverse employees. They are unable to develop a system that enhances efficiency in MNCs by combining local and international diversities for sustainable global practices. Hence, MNCs seek standardized HR practices.
First, organizational culture is responsible for standardization in HR practices. HR managers want to create uniformity in pay systems, training and development, recruitment and selection, and performance management. These are HR tools, which they have applied to ensure same practices for developing specific cultures in their organizations. HR managers believe that uniform corporate cultures help their organizations to develop high performance environments, which support overall strategic objectives of organizations at all levels. Organizations believe that culture is critical in their overall success.
As a result, they focus on human resources to enhance efficiency and improve corporate culture. HR managers want to describe their culture and provide insightful responses. Hence, they want to use terms like team oriented and performance driven international workforce to describe their standardized practices. On this note, IHRM aims to identify roles of human resource managers in shaping organizational culture without misunderstanding or ignoring any useful practices.
In this scope, one must recognize that different aspects also influence, shape, reinforce, and change organizational cultures. Culture has a direct contribution to the overall performance and survival of a company. Given the significant of culture on an organizational success, it is imperative for HR managers to standardize it globally in order to enhance planning. HR managers can enhance standardization of culture in their global operations by using different HR practices. Hence, it is advantageous for HR managers to adopt a worldwide corporate culture for all its subsidiaries.
Second, organizational strategy and structure also enhance the need to standardize HR practices globally. Firms that operate globally with many employees in various parts of the world require uniformity in strategy and structure. While HR practices could be segmented and variable across different countries, HR managers must provide standard processes that account for different laws, economic, cultural, and other differences across the globe. As a result, many HR managers aim to develop and implement a single HR system that manages diverse structures, core processes, and practices across the world rather than using segmented processes.
The Role Of The Subsidiary
Subsidiaries have critical roles to play in MNCs. Traditionally, the parent country has been the major source of knowledge and competencies for foreign subsidiaries. However, this role is changing. Increasingly, the parent country has become a receiver of knowledge from subsidiary countries (Ambos, Ambos, and Schlegelmilch, 2006). There are variables that may influence the ability of the parent country to receive and benefit from knowledge transfer. Efficiency and ability to integrate changes from subsidiaries could affect how MNCs use received knowledge. On this note, subsidiaries play critical roles in MNCs.
Global innovators have the responsibility of offering critical knowledge for other divisions of MNCs. In this case, the IHRM policies and procedures must facilitate the transfer of knowledge to MNC subsidiaries.
Integrated players have the prime role of creating and receiving knowledge. In this case, IHRM practices and procedures must encourage the same practices by enhancing global standardization and localization of its cultures, structures, and overall strategies.
Implementers must use knowledge they receive from the parent company or other subsidiaries in order to develop their knowledge base and practices. IHRM policies and practices originate from the headquarters and implementers must implement them at the local levels.
Local innovators focus on the development of specific knowledge for the country or region of operations. They have the responsibility at the local levels to ensure knowledge development. In this case, HRM policies and practices do not borrow any policies or practices from subsidiaries or parent company, but policies and practices are localized for a specific country.
Researchers have focused on knowledge sharing across subsidiaries and parent company in MNCs, particularly in their global, domestic, and transnational business strategies. A study by Kasper, Lehrer, Mühlbacher, and Müller (2009) showed “considerable polarization in knowledge-sharing practices between MNCs implementing transnational and global strategies, with cross-site knowledge sharing being of very high intensity among the former and quite minimal among the latter” (p. 300). In addition, MNCs that focused on promoting global, domestic, and transnational strategies had diverse ways of sharing knowledge with subsidiaries. The relationship aims to promote integration of diverse factors across subsidiaries and MNCs.
MNC that only focuses on a mere sharing of information cannot promote relevant development of strategic business objectives (Kasper et al., 2009). Instead, MNC should focus on global strategies in order to implement centralized systems that facilitate knowledge sharing across its different business units. It could be difficult for MNCs to understand the best methods for facilitating knowledge sharing before conducting studies to understand their local environments, employee characteristics, and available resources for such activities. Knowledge sharing is a complex practice across many MNCs and could be limited in scope. The process could be difficult due to diverse employees’ roles, expertise, and skills. These factors could create gaps that hinder effective transfer of knowledge and roles of subsidiaries in these processes. The gaps could indicate underlying challenges in effective sharing of knowledge across subsidiaries and the parent company. Therefore, it is imperative for global HR managers and other business leaders to understand the relevance of knowledge transfer in an organization. While sharing of knowledge across subsidiaries and MNCs has gained recognition, employees should understand feasibility of such practices within specific industry and business conditions.
Two Factors That Drive The Localization Of HRM Practices For An MNE
Challenges for MNCs originate from diversity across the globe. A different local culture for the parent country may not produce the same results in another subsidiary. As a result, IHR managers have focused on localization of some HR practices in order to leverage unique human resource capabilities and create competitive advantage globally.
First, cultural differences are major drivers that facilitate localization of HRM policies and practices. HR practices should account for cultural differences because some subsidiaries may reject corporate cultures from the parent country. In most cases, employees may regard such practices as unusual. This could hamper the performance of a subsidiary. This implies that MNCs may find it difficult to standardize HR practices and policies in all their subsidiaries. This could result from challenges inherent in integrating local culture and parent country cultures. As a result, many subsidiaries prefer localization of culture in MNCs.
Second, there are institutional aspects that may hinder standardization of HRM practices and policies. In this context, it is imperative for organizations to understand legal, economic, financial policies, and political environments of their subsidiaries. MNC HR managers must understand that the extent to which they can standardize their global practices depends on the nature of local subsidiaries and business environments. For instance, some local institutions may resist any attempts by parent companies to introduce global standards in their local operations.
Such institutions may demand employment of many locals than foreigners in strategic positions while MNCs prefer that expatriates should control strategic positions. One major advantage is that such demands lead to knowledge and technology transfer through training and skill developments by expatriates. Localization of HRM practices promotes benefits to local employees and increases chances of employment, as well as public opinion about the company. In addition, localization of HRM practices eliminates complexity that relate to accountability to local authorities, regulations, and other bodies. However, MNCs may not find the right employees with required skills to fill strategic positions in business operations.
The Impact Of The Culture And Institutional Context
Recruitment And Section
Organizational culture affects acquisition of the right talent for MNCs. It determines training, skills, and attitudes of employees. IHRM would focus on factors beyond employees’ skills and training. They must determine if new employees will be good cultural fit within a global context. On this basis, HR managers must ensure that all employees have abilities to fit within the cultural context of the organization during hiring procedures.
Training and Development
Organizational cultures influence training and development practices as HR managers seek to instill skills that would ensure that employees believe, work, and conduct themselves in specific manner. As a result, they ensure that training programs reflect only desired contents, which would ensure that employees adopt corporate culture. Employees, who have demonstrated competencies in corporate cultures, may also earn reputation and assume higher positions with greater responsibilities in organizations. Hence, corporate culture could influence HR training and development, as well as promotion.
Compensation and reward structures in organizations are strategic HR tools that inspire employees to improve their performances (Dowling et al., 2013). On this note, HR policies should encourage a culture based on performance and rewards. Any employees who perform below the standards should not get rewards because any attempts to reward such employees could affect the corporate culture negatively.
Corporate culture has significant impacts on task distribution and subsequent performance. Corporate culture defines expectations from employees in terms of performances and feedback, which an organization expects from them. HR managers must ensure that task distribution reflects employees’ capabilities and competency levels.
The HR department has a significant role in determining, supporting, and promoting corporate culture among employees (Dowling et al., 2013). Hence, the existing corporate culture could influence most practices in the HR department. One must recognize that culture plays a significant role in employees’ contribution to the company and its continued existence. Hence, HR managers must enhance the development of corporate culture among employees in the parent company and its subsidiaries.
As this essay demonstrates, IHRM and domestic HRM differ on key areas. However, there are instances that require globalization and localization of HRM practices and policies. Both localization and globalization offer strategic advantages to an organization. Moreover, it is also imperative to understand the role of MNC and its subsidiaries in developing effective global strategic goals for the business. Finally, HRM policies should focus on hiring employees that would promote corporate culture globally.
Ambos, T., Ambos, B., and Schlegelmilch, B. (2006). Learning from foreign subsidiaries: An empirical investigation of headquarters’ benefits from reverse knowledge transfers. International Business Review, 15(3), 294–312. Web.
Dowling, P., Festing, M., and Engle, A. (2013). International Human Resource Management (6th ed.). London: Cengage Learning EMEA.
Kasper, H., Lehrer, M., Mühlbacher, J., and Müller, B. (2009). Integration-Responsiveness and Knowledge-Management Perspectives on the MNC: A Typology and Field Study of Cross-Site Knowledge-Sharing Practices. Journal of Leadership & Organizational Studies, 15, 287. Web.