Globalization has, over the last few decades, opened numerous business opportunities all over the world. Business enterprises have taken advantage of the situation by expanding their trade and investment activities beyond their local markets, a process known as internationalization (du Plessis, 2010). Engaging in the international business has a significant impact on the functions carried out by an organization’s human resource management (HRM). The key HRM functions carried out by both the firms that operate at the domestic and international levels include recruitment, performance appraisal, training and dismissal. However, there is a significant difference in the responsibilities of the HR managers of international companies and the HR managers of the firms that operate at the domestic level. The scope of responsibilities for HR managers of international companies is bigger than the scope of responsibilities for a HR of a domestic firm (du Plessis, 2010). This gives a hint that the international HRM is more complex than the domestic HRM. In this regard, this paper explores the impact of the international business on HRM. In particular, the paper examines how the international business has affected HRM and the impact of diversity factors, namely, culture, political practices and social economic practices, on HRM. Further, the paper examines the challenges posed by growth in international business on HRM and it suggests how the HRM can prepare itself for these challenges.
The effects of International Business on HRM
As mentioned earlier, international HRM is carried out at international level, and the scope of its roles is bigger than the scope of the roles carried out by a domestic firm. Unlike domestic HRM management that only involves managing workers in the domestic country, international HRM involves managing host country workers, home country workers and third country workers. The home country workers are the employees who belong to the home country and work within the country where an organization’s headquarters are situated. The host country workers are the employees belonging to a foreign country where an organization’s subsidiary is located and they work for the organization in that subsidiary or in the branches situated in the home country. On the other hand, third country workers are employees working in an organization, either locally or in the foreign subsidiaries, but they do not belong to home country or the country in which the subsidiaries are located (du Plessis, 2010). In addition to the conventional functions of the HRM such as recruitment, performance appraisal, training and development and dismissal, the HR managers of international firms carry out extra roles of managing the expatriates. The effects of international business on HRM can be well understood by looking at the diversity factors, namely, cultures, political practices and socioeconomic impacts.
Impact of Diversity Factors
When carrying out their functions, the HR managers of the international companies must address the differences in the cultures of the countries in which they operate. Different countries have different cultural aspects, which are termed as dimensions of culture in the Hofstede’s framework. The key dimensions of national culture identified in Hofstede’s framework are Individualism/ Collectivism, Uncertainty Avoidance, Power Distance and Masculinity/Femininity and long-term orientation (McFarlin & Sweeney, 2014). In the US, for instance, people embrace individualism. As such, the US workers are likely to show characteristics of individualism such as working independently, fighting for individual rights and focusing on personal achievements. Such workers are likely to carry out tasks independently and to rely on their minds to solve most of the emerging problems at the work place, rather than relying on the others or the management (McFarlin & Sweeney, 2014). On the other hand, people of China and other parts of Asia tend to embrace collectivism. Individuals who embrace collectivism value the achievement of the whole group or team, rather than the achievement made at personal level. Thus, workers in China are likely to work in groups and to rely on each other and the management in solving problems. As well, level of uncertainty avoidance is different between the two societies. Uncertainty avoidance is the drive to tolerate risks (McFarlin & Sweeney, 2014). The level of uncertainty avoidance among the people of US is lower than the level of uncertainty avoidance in China and other Asian countries. Workers from the US are more likely to take risks and to rely less on formal rules. They are likely to try new things and to deviate from the norms in some cases while working. On the other hand, workers from China are more likely to avoid trying new things or taking risks. They are more likely to follow written rules and consensus and hardly tolerate deviations from any laid down norms (McFarlin & Sweeney, 2014). The same case applies to the dimension of power distance. Individuals in societies with higher levels of power distance tend to follow formal codes of conduct. Such individuals are likely to be reluctant to disagree with supervisors. On the other hand, persons in societies characterized with lower power distance do not feel as constrained by actual or perceived differences in power, position and status. In China, there, there are higher levels of power distance than in the US (McFarlin & Sweeney, 2014).
Long-term orientation refers to the respect and attachment that people have for the traditions. People in a society with a long-term cultural orientation value respect for traditions perseverance, thrift and posses senses of personal shame (Robbins & Judge, 2012). In contrast, persons in a society with short-term cultural orientation are characterized by individualism, tertiary and organic relationships (Robbins & Judge, 2012). In China and other parts of Asia, people have long-term cultural orientation. On the other hand, the people of US have short-term cultural orientation. In short, the cultural differences between people in different countries manifest even at the work place. A HR manager for an international company operating in both the US and China must acknowledge and uphold the cultural differences. Otherwise, problems might emerge when dealing with the workers. This is evident in the case of the Regency Grand Hotel, a Thai five-star hotel (Gooderham & Grøogaard, 2013). When the hotel was acquired by a US firm, the general manager, who played the role of a HR manager in the hotel, retired. He was replaced with John Becker, an American. Becker changed the management of the hotel and embraced the management approaches adopted by the US firms. The Thai workers were unable to work with the new system, leading to poor service, stress among the workers and high level of turnover (Gooderham & Grøogaard, 2013). Thus, the need to manage workers across different cultures is one of the key impacts of the international business.
The political practices in both the home country and the host country or between the home country and the host country affect the international HRM practices. When extending business activities into foreign countries, organizations require managers and non-managers to operate in the foreign-based subsidiaries. In most cases, organizations recruit workers and managers from both the home country and the target country. During the recruitment, there are numerous factors related to hiring in the foreign country that an organization’s HRM must consider before engaging in the practice. The recruitment practice in a foreign country is usually subject to the laws and regulations of the foreign country. For instance, a HR manager for US firm that has a subsidiary in China is must give consideration to the local labour laws and regulations in before recruiting Chinese workers. There are several laws and regulations that foreign companies in China must adhere to when recruiting employees, including Regulations on the Control of Resident Offices of Foreign Enterprises, Regulations on Labor Management of Foreign Funded Enterprises and Regulation on Labor Management of Sino-foreign Joint Ventures. In general, the rules and regulations guiding recruitment practice in China do not allow foreigners to be employed in any organizations operating locally without a government permit. All foreign workers are required to obtain special permission and employment certificate from local labor authority. In addition, the workers from foreign countries are required to provide details of residence in the city where they are working. The laws and regulations set standards for minimum wages, working hours, leave, working conditions and holidays (Garrik, 2012). In short, a HR manager for a US company or a company emerging from any other country must give consideration to such laws and regulations, in addition to the international labor laws that are present. When dealing with the workers at the home country, the firm must adhere to the local laws and regulations.
The HRM for the international organizations is affected by socio-economic factors such as education levels, training levels, employment trends, health of the population and wage rate in all counties whether the organization operates. For instance, numerous studies conducted recently have shown that there are difficulties experienced by foreign and multinational organizations in attracting and retaining managers from the local population in China (Chen & Dao, 2013). One of the causes of the problem is shortage of skills needed to operate in certain areas within an organization. Over the last few decades, the number of Chinese citizens accessing university education has been increasing at a high rate. However, as Chen and Dao (2013) explain, students are required to major in a single subject and hardly get opportunities to study other subjects that may help to gain basic knowledge of other fields. For instance, a person studying finance may not have an opportunity to study management and language. In addition, majority of students in China take art subjects that emphasize on perspective and theory; there is small percentage of students who pursue science subjects and other subjects that provide technical skills. According to Chen and Dao (2013), out of the total number of students enrolling in universities, only about 10% undertake subjects such as accounting, finance, medicine, engineering, nursing and qualitative and analysis. This implies that a HR manager for a firm with a subsidiary in China may need to hire managers for the subsidiary from another country other than China.
Challenges of International Business and how the HRM can face them
There numerous challenges that are posed by the growth of international business to HRM. As mentioned earlier, one of the challenges is the need to manage cultural differences among workers within an international organization. HR managers can prepare themselves to face the challenge through understanding and embracing the cultural differences of workers hired from different countries. They can apply the knowledge through developing employee management plans that suit different workers, with regard to their cultural backgrounds (Frege & Kelly, 2013). Another challenge is the lack of adequate skilled expatriates to carry out certain tasks. The problem can be addressed through providing training to the hired expatriates in the home countries and in the foreign countries so that they gain adequate skills that are needed. The HR managers should also plan and implement training to the expatriates to enable them adapt to the overseas culture. The other challenge is the differences in labor laws and regulation between different countries in which an organization operates. The HR managers for the international organizations can address this through reading and understanding the different labor laws and regulations of different countries and adhering to them (Frege & Kelly, 2013).
Another key challenge faced by the HRM for the international firms is communication barriers that affect the flow of information between the parent firm and the subsidiaries. This challenge is caused by factors such as geographical distance and language barrier. Implementing communication gadgets that would allow speedy flow of information from the subsidiaries and the parent company can partially address the problem (Frege & Kelly, 2013). Further, effectiveness in communication can be achieved through laying out strategies for addressing the language barriers, such as training the workers to use international languages. As well, managing stress among the expatriates who work away from their home countries is a major challenge for the IHRM (Frege & Kelly, 2013). The HR managers can address the issue through providing incentives to enable them adjust, such as tickets to visit family members frequently, holidays and satisfactory compensations.
Overall, the growth of international business has a significant impact on the IHRM. The IHRM is complex than the domestic HRM. A HR manager for an international business has a greater scope of responsibilities than a HR manager for a domestic firm. Diversity across countries in terms of cultures, political practices and socioeconomic factors is the most significant aspect of the international business that affects the IHRM practices. In order to carry out the HRM roles effectively, a HR manager for an international firm needs to understand the different cultures of the different countries in which the organization operates. Secondly, the HR manager needs to understand the political practices of all the countries in which the international firm operates, especially the labor policies, laws and regulations. Thirdly, there is need for the HR manager to understand the status of the socioeconomic factors of the workers in all countries, such as education level, skills level, health, and compensation rates. These factors also pose the main challenges to the IHRM. Other challenges faced by the IHRM include barriers in communication, lack of adequate skilled expatriates and the need to manage the stressed expatriates. The IHRM should always be prepared to face these challenges. .