Tag: Cost Control and Management Accounting Osmania University b.com Notes

Trade unions, also known as labour unions in the United States, are organizations of workers in a common trade who have organized into groups dedicated to improving the workers’ work life. A trade union generally negotiates with employers on behalf of its members, advocating for improvements such as better working conditions, compensation and job security. These unions play an important role in industrial relations the relationship between employees and employers.

History

The origins of trade unions can be found in guilds and fraternal organizations composed of people practicing a common trade, which date back hundreds of years. However, the modern conception of trade unions, in which unions represent a specific set of workers in negotiations with employers, dates back only to the 18th century. Membership in unions only became widespread in the United States and Europe in the 19th century.

Trade unions are associations of workers formed to represent their interests and improve their pay and working conditions.

Types

There are four main types of trade unions.

Craft unions

These represent workers with particular skills e.g. plumbers and weavers. These workers may be employed in a number of industries.

General unions

These unions include workers with a range of skills and from a range of industries.

Industrial unions

These seek to represent all the workers in a particular industry, for instance, those in the rail industry.

White collar unions

These unions represent particular professions, including pilots and teachers. Unions in a country, often belong to a national union organization. For example, in India, a number of unions belong to the All-India Trade Union Congress (AITUC).

This is the oldest and one of the largest trade union federations in the country. A number of them also belong to international trade union organizations such as the International Confederation of Free Trade Unions, which has more than 230 affiliated organizations in 150 countries.

Role of Trade Unions:

Unions carry out a number of functions. They negotiate on behalf of their members on pay scales, working hours and working conditions. These areas can include basic pay, overtime payments, holidays, health safety, promotion prospects, maternity and paternity rights and job security.

Depending on the circumstances, unions may try to protect or improve workers’ rights. They also provide information on a range of issues for their members, for instance on pensions. They help with education and training schemes and may also participate in measures designed to increase demand for the product produced and hence for labour.

Some also provide a range of benefits to their members including strike pay, sickness pay and unemployment pay. In addition, many get involved in pressurizing their governments to adopt a legislation, which will benefit their members or workers in general, such as fixing a national minimum wage.

Designing and developing a better compensation package for HR professionals for the international assignments requires knowledge of taxation, employment laws, and foreign currency fluctuation by the HR professionals. Moreover, the socio-economic conditions of the country have to be taken into consideration while developing a compensation package. It is easy to develop the compensation package for the parent country national but difficult to manage the host and third country nationals. When a firm develops international compensation policies, it tries to fulfils some broad objectives:

• The compensation policy should be in line with the structure, business needs and overall strategy of the organization.
• The policy should aim at attracting and retaining the best talent.
• It should enhance employee satisfaction.
• It should be clear in terms of understanding of the employees and also convenient to administer.

The employee also has a number of objectives that he wishes to achieve from the compensation policy of the firm:

• He expects proper compensation against his competency and performance level.
• He expects substantial financial gain for his own comfort and for his family also.
• He expects his present and future needs to be taken care of including children’s education, medical protection and housing facilities.
• The policy should be progressive in nature.

Balance Sheet Approach:

The Balance Sheet Approach to international compensation is a system designed to equalize the purchasing power of employees at comparable position levels living abroad and in the home country and to provide incentives to offset qualitative differences between assignment locations. The balance sheet approach is widely used by international organizations to determine the compensation package of the expatriates. The basic objective is the maintenance of living standards of the home country plus financial inducement.

• Goods and Services: Outlays incurred in the home country for food, personal care, clothing, household furnishing, recreation, transportation, and medical care.
• Housing: All major costs associated with housing in the host country.
• Income Taxes: Parent country and host country income tax expenditures.
• Reserve: Contribution to savings, payments for benefits, pension contributions, investments, education expenses, social security taxes, etc.

Advantages:

• Equality between assignments and between expatriates of the same nationality.
• Facilitates expatriate re-entry
• Easy to communicate to the employees

Disadvantages:

• It can result in considerable disparities between the expatriates of different nationalities and between expatriates and local nationals.
• It can be quite complex to administer due to changing economic conditions, taxation etc.

Going Rate Approach

This is based on local market rates. It relies on comparisons of surveys of the local nationals, expatriates of same nationality and expatriates of all nationalities’ pay packages. In this approach, the compensation is based on the selected survey comparison. The base pay and benefits may be supplemented by additional payments for low pay countries.

Advantages

• Simplicity
• Equality with local nationals
• Identification with the host country
• Equity amongst different nationalities

Disadvantages

• Potential re-entry problems in the home country.
• Variation between assignments for the same employees.
• The rivalry between expatriates of the same nationality in getting assignments to some countries.

Lump Sum Approach:

This involves giving the expatriate a predetermined salary and letting the individual decide about how to spend it. Finally, there is the regional system, under which the MNC sets a compensation system for all expatriates who are assigned to a particular region. Thus, everyone going to Europe falls under one particular system and those going to South Africa come under a different system.

Citizen’s Approach:

In this approach, an international basket of goods is used for all expatriates, regardless of country of origin. The basket of goods includes food, clothing, housing, and so forth. However, expatriates are not provided salary adjustments that would allow them to purchase exactly the same items in the host country as in the home country. Rather, they receive adjustments that would allow them to purchase a comparable local product of the same nature; e.g., rather than a Mercedes (which they had in the home country), they would buy a local luxury car.

Alternatively called the global salary systems, the international citizen’s approach is appropriate when an MNC has a team of dedicated international managers Europeans, Americans or Asians – who are ready to move to any part of the globe easily and effectively. Global salary systems seek to provide worldwide equity in rewards and allow managers to move between countries with minimal effects on lifestyle.

Compensation is the remuneration received by an employee in returns of their contribution to the organization. Compensation is extrinsic reward for an employee. Extrinsic rewards include praise from a superior, salary, employee benefits, career progression etc.

International compensation refers to all forms of financial returns and tangible benefits that employees of an international organization receive from their employer in exchange for providing their labor and commitment.

Almost all the employees accept jobs in MNC’s take-up assignments in various countries, & take-up the risk, bear inconveniences & discomforts in foreign assignments mostly based on the compensation package.

Objectives:

• Recruit & Retain Competent Employees
• Consistency & Equity in Pay
• Employability in a Cost Effective
• Financial Protection to Employees
• Organizational Ability to Pay
• Comparative & Comparable
• Benefit Management
• Improve Organizational Performance

Internal Variables Affecting International Compensation Strategy

Goal orientation: UK-based foam manufacturer Zotefoam, where equality is a key aspect of HRM in the company’s mission, the only perks that differentiate executives from other workers are private health insurance and a car allowance MD of the firm sees the internationalizing firm as one with minimal status differences between levels in the org. hierarchy.

Capacity to pay: Cost constraints on the enterprise

Competitive strategy: If for eg., as part of the MNC competitive strategy, the IHRM strategy is to be a market leader in employee compensation in order to compete for the most competent candidates, then the levels of compensation might well be higher than if the competitive strategy is based on, say, the provision of secure employment.

Organization culture: It also influences the degree to which employees are compensated on the basis of seniority, in contrast to personal connections or performance.

Workforce characteristics: Age, education level, qualifications and experience, along with workforce tastes and preferences, and labor relations factors such as nature of employment relationship (level of TU involvement within MNCs) will result in different international compensation approaches.

External Variables Affecting International Compensation Strategy

Nationality of the parent country: In terms of culturally determined values and attitudes towards compensation policy and practices; local culture influences international compensation strategy through the dominant societal values, norms, attitudes and beliefs concerning for eg. bases for compensation differences (performance, family connections, gender), degrees of compensation differences between managerial and non- managerial employees, and the propensity for using particular types of compensation (pay incentives and benefits).

Labor market characteristics of supply and demand: Education and skill levels, ages and experiences of those in the labor market.

Role of home and host country government in labor relations affect the level of govt. regulation of the labor market and employment relationship, including compensation of the workforce.

Industry type

• Evidence from two global industries, scientific measuring and medical instruments suggest that MNCs competing in a global industry may be more likely to allocate rewards based on corporate and regional performance rather than on subsidiary performance, as favored by MNCs competing in a multi-domestic industry.
• Different industry sectors also have different norms and practices for international compensation (eg. service-sector and high technology MNCs have been more likely than manufacturers to incorporate equity- based options in their international compensation strategies.

Competitors’ strategies

Even if the MNC is not seeking to be a market leader in international compensation, it generally cannot afford to fall behind market rates across its locations, as it will risk losing valuable employees to competitors.

Objectives

The objectives of compensation package of MNCs are presented in Figure below MNCs manage the compensation and benefits with the following objectives.

• Consistency and Equity: MNCs design the salary and benefits package to secure consistency between pay and performance and equity among employees of different nationalities and categories, and employees of subsidiaries and parent company.
• Recruitment and Retention of suitable Employees: MNCs design and practice compensation and benefits in order to attract, and retain suitable employees in terms of job efficiency and cultural adaptability.
• Facilitate Mobility: MNCs design pay package in order to enable the employees to move from the parent company to foreign subsidiaries and from one foreign subsidiary to another foreign subsidiary.
• Organisational performance: MNCs pay package should work as motivator to enhance employee job performance, learning latest skills and contribute to the enhancement of organisational performance. In fact, performance-based pay package enhances organisational performance.
• Adaptability to Foreign Cultures and Environment: MNCs design pay package that motivates employees and his/her family members to willingly adapt to the cultures and environment of the foreign countries. For example, providing comfortable housing, highly reliable medical facilities, security facilities against odds and international standards schooling facilities encourage employee’s family members to adapt to the foreign country cultures and environment and allow the employee to concentrate on the job.

Importance of International Compensations

• Optimizing Cost of Compensation: It is to facilitate the transfer of International employees in the most cost-effective manner for the firm. Compensation management aims at optimizing the cost of compensation by establishing some kind of linkage with performance and compensation. It is not necessary that a higher level of wages and salaries will bring higher performance automatically but depends on the kind of linkage that is established between performance and wages and salaries.
• Attracting and Retaining Personnel: Most to attract and retain staff in the areas where the multinational has the greatest needs and opportunities, hence must be competitive and recognize factors such as the incentive for Foreign Services, tax equalization, and reimbursement for reasonable costs.
• Consistency in Compensation: It means to be consistent with the overall strategy, structure and business needs of the multinational. Compensation management tries to achieve consistency-both internal and external in compensating employees. Internal consistency involves payment of the basis of criticality of jobs and employees’ performance on jobs. Thus, higher compensation is attached to higher-level jobs. Similarly, higher compensation attached to higher performers in the same job. External consistency involves similar compensation for a job in all organizations. Though there are many factors involved in the determination of wage and salary structure for a job in an organization which may result into some kind of disparity in the compensation of a particular job as compared to other organization, compensation management tries to reduce this disparity.
• Motivating Personnel: Compensation management aims at motivating personnel for higher productivity. Monetary compensation has its own limitations in motivating people for superior performance.

Components of International Compensation Program

Base salary:

For expatriates, the term base salary means the primary component of a package of allowances which are:

(a) Foreign service premium

(b) Cost-of-living allowance

(c) Housing and utility allowance

(d) Basis for in-service benefits and pension contributions.

Base salary may be paid in home or local currency or in some hard currency like pound or dollar.

Foreign Service inducement/hardship premium:

Parent-country nationals often receive a salary premium as an inducement to accept a foreign assignment or as compensation for any hardship caused by the transfer. Such payments vary depending upon the assignment, actual hardship, tax paid to foreign governments and length of the assignment.

Education Allowances for Children:

Education allowances are given towards fees for the education of expatriates’ children. Education allowances include items such as tuition, language class tuition, books, transportation and uniforms.

Relocation Allowances and Moving:

Relocation allowances usually cover moving, shipping; temporary living expenses, and down payments or lease-related charges.

Tax Equalisation Payments:

Many international compensation plans attempt to protect the expatriate from negative tax consequences by using a tax equalisation plan. Under this plan, the company adjusts an employee’s base income so that the expatriates will not pay any more or less tax than if they had stayed in the home country.

Allowances:

Various allowances are paid to expatriates depending upon the assignment. They include:

(a) The cost-of-living allowance (COLA):

It involves a payment to compensate the differences in expenditures between the home country and the foreign country.

(b) Housing allowance:

Implies that employees should be entitled to maintain their home-country living standards (or, in some cases, receive accommodations)

(c) Home leaves and travel allowances:

Is given to cover the expense of trips (usually once in a year) back home. These trips allow the expatriates the opportunity to renew family and business ties, thereby helping them to avoid adjustment problems when they are repatriated.

Spouse Assistance:

To help guard against or offset income lost by an expatriate’s spouse as a result of relocating abroad. Multinationals generally pay allowances in order to encourage employees to take up international assignments.

International or global recruitment is simply the process involved in the searching and hiring of talented candidates from anywhere across the globe. The recruitment and selection process has a long history with man. We’ve always been involved in nominating and selecting representatives for sports, politics, associations, leadership, etc. Oftentimes, we always desire and opt for the most capable, skilled, efficient, and qualified individuals to champion the specific course as to which we are selecting people.

International Deployment of Staff:

Skills shortages in the home-grown market mean that certain sectors are looking outside the UK to fill posts. Other international companies are looking to scale up very rapidly overseas, to shift resources and develop talent in unknown markets. as a result in selecting assignees for alternative forms of international assignments, MNCs should be aware of the limitations associated with more traditional forms of international assignments and should work toward more sophisticated recruitment and selection techniques. An international assignment is a process whereby an employee is sent/ transferred overseas for a certain period of time.

With the increase in globalisation, it had become inevitable for organisations to be involved in the international transfer of staff. Due to globalisation, MNS’s are in a competition to groom managers to meet the challenges and demands of strategic global human resources management according to Mendenhall and Oddou (1995) expatriation comes as a result of the lack of skilled manpower within organisations.

International transfer of staff or expatriation is a tool to enhance exchange as well as transfer of knowledge thus enhancing organisation learning. Borg and Harzing (1995) perceives expatriation as holding advantages of transferring technical and well as administrative knowledge.

Edstrum A. and Galbraith J. (1997) explain the reasons why organisations engage in international assignments. They believe that the following three reasons are the key factors:

To fill a position ( Also to take into consideration that this can be for the purpose to train managers who can gradually take up more advanced posts with the parent organisation or at subsidiary abroad)

Management development; By giving the managers an international experience and training them for future important tasks in subsidiaries abroad or with the parent organisation. This kind of transfer often takes place when qualified host country national are available.

Organisational Development (the idea is that managers become less ethnocentric once they come into contact with a variety of culture. It is assumed that the large-scale transfer of managers of different nationalities between the parent organisation and its subsidiaries abroad will create international communication networks)

Hiring and selection of candidates internationally have a different twist when compare to local or domestic recruitment processes. The variation in market, culture, languages, policies, etc have given global recruiting of talents a new perspective. For instance, the rules and regulations binding employees’ hiring in Europe will have a different taste to the system used in America. For instance, the resume/CV format for job hiring in America doesn’t need information like date of birth, marital status, etc compared to how this information is required in some countries. Also, in America, most job CV/resume must be skill and result-driven compared to the duty-based resumes/CV required in some regions of the world.

Several factors are attached to international recruitment, and companies need to be aware of these factors. One of these factors is identifying and working with the best and reliable recruiter. The selected recruiter must have a good understanding of selection processes, compliance, foreign laws, and other global distinctions. Another factor company has to take note of is the development of a good understanding and expertise of foreign recruitment and selection. Furthermore, recruiters must be familiar with the company’s required skill sets and ideal candidates to aid the selection of the right candidates at the right time for the required job.

International recruitment and selection involve major approaches asking which are ethnocentric, polycentric, geocentric, and regiocentric. The ethnocentric approach involves companies hiring only talents that are citizens of their home country in their business locally and overseas. Polycentric involves companies hiring the citizens of a particular country as an employee where the company subsidiaries are located, for example, a California company, hiring Ghanaian citizens to manage its Ghanaian subsidiary. The geocentric approach is the most popular and it involves companies hiring talents across the globe without any nationality clause. Finally, regiocentric is a method that is used to hire talents from a specific region with a particular environment.

These are the major steps involved in international recruitment and selection

• Preparation and planning
• Development of recruitment strategies
• Talent sourcing
• Candidate interviewing
• Screening and examination
• Selection and recommendation

Reasons

Growth

When you desire to hire workers across borders, you are directly and indirectly positioning your organization for a robust phase of growth. This is because hiring internationally will provide you with candidates of different perspectives, innovation, and expertise. They will give your organization a reliable and trusted brand in foreign markets, thus increasing your market base.

An expanded community of talents and experts

Organizations are exposed to an expanded community of workers when they leverage global recruitments. Limiting your workforce to locals within your home country is not a recommended idea because it will limit you of the diversified benefits in which foreigners will bring onboard. Thus, exploring global recruitment will just give you access to specialized talents with exceptional skills and innovations.

Cultural Diversity

Hiring workers overseas will increase the power of diversity in any business. Diversity adds value to the team’s culture and structure. Foreign recruitment allows organizations to bring together people of different cultural background to enhance change, adaptability, working environment, and innovation.

Global Market Integration

Internationally hired workers will give your business better leverage in the new markets. These workers help in branding your business within the standard of the new market. They also provide you with a deeper understanding and knowledge of the ways through which you can boost and grow your businesses.

According to P. V. Morgan, International HRM is the result of an interplay among the three dimensions human resource activities, types of employees and countries of operation. The complexities of operating in various countries and employing different national categories of workers is an important variable that differentiates domestic and international HRM, rather than any major differences between HRM activities performed.

Broadly stated, IHRM is “The process of procuring, allocating and effectively utilising human resources in a multinational corporation”. When compared to domestic human resources management, the scope of IHRM is very wide.

For example, while compensating people in India, the American MNC must keep in mind the expectations of locals, the competitor’s compensation structure, taxation problems of repatriates, TCN’s aspirations and a host of other issues that have a bearing on the psyche of employees possessing different skills and having different cultural backgrounds (both within and outside the country).

IHRM, thus, requires a much broader perspective, encompasses a greater scope of activities and is subject to much greater challenges than is domestic HRM.

International HRM can be a challenging exercise because of fairly obvious reasons:

• Integration Issues:

It is difficult to push the right button at the right time, especially when managers operate from headquarters separated by distance. Controlling operations of subsidiary companies in different parts of the globe through remote control can be really taxing especially in coordinating effort and put the same on track in sync with the established policies of a company.

• Heterogeneous Functions:

International HRM can be very challenging when one takes a look at what international HR managers are supposed to handle in terms of variety and complexity; including issues relating to international hiring, placement, culture-specific training, compensation relating problems, administrative services to expatriates, carrying out appraisals from time to time, offering growth opportunities to the talented ones, putting out fires with labour, resolving conflicts and maintaining health labour-management relations, etc.

The employees sent abroad on an assignment need to be taken care of in a special way. Their families too need to be taken care of including medical, educational, insurance, transportation benefits, etc. HR issues relating to the above are going to be impacted by a variety of factors which demand a closer examination.

Some of the more basic issues involved in pertinent areas of global human resource management are explained below:

1. Staffing, Recruitment and Selection:

There are basically three ways to meet the requirements of manpower in foreign ventures. First, a foreign company may send persons of its home country to manage its affairs in the host country. Second, it can hire people of the host countries to meet its human resource requirements there. Third, it can also utilise the services of third country nationals. International HRM is now accepted as the key source of competitive advantage for international business.

In all cases, there have emerged certain norms regarding basic characteristics in international staffing. These are as follows:

(i) Cultural adaptability.

(ii) Strong communication skills.

(iii) Technical competence

(iv) Professional expertise

(v) Global experience

(vi) Inter-personal skills

(vii) Family flexibility

(viii) Country or region specific considerations.

Most of the multinational companies vie with each other to recruit candidates for technical and managerial positions from highly reputed technical and management institutes offering them lucrative compensation packages and try to retain the services of the most talented ones.

Some of the advantages of staffing from the home country nationals are as follows:

(i) Greater control over activities of the organisation.

(ii) Acquisition of experience in local markets.

(iii) Greater efficiency in implementing business strategy.

(iv) Adequate understanding of culture of the host country.

The disadvantages include the following:

(i) Difficulty in adoption to the foreign environment.

(ii) Problems of family adjustability.

(iii) Friction resulting from language barriers.

The major advantages of staffing from amongst the host country nationals are as follows:

(i) Elimination or reduction of language barriers.

(ii) Better understanding of host country’s laws and regulations.

(iii) Reduction of hiring cost.

(iv) Reduced compensation package.

The disadvantages include:

(i) Poor understanding of business objectives of host-country organisation and (ii) Possibility of biases and favouritism in appointments.

The advantages of third country nationals in staffing are as follows:

(i) Better equipped with the use of international perspectives.

(ii) Possibility of low cost of hiring.

Disadvantages are as follows:

(i) Poor understanding of political situations and national hostilities.

(ii) Resistance from the government and local people and functionaries in the organisation.

In India, major requirements of various categories of manpower needed by foreign companies are met by the people of the country itself. India has a bountiful of software engineers and analysts, technical and managerial personnel with adequate expertise and specialisation, skilled and unskilled workers. Most of the foreign MNCs operating in India utilise the services of the local people to manage their businesses in the country.

The use of information technology, Internet and the services of specialised and professional organisations have considerably made the task of hiring easy and convenient. Only in the case of top positions, the foreign companies generally prefer to fill them by personnel of their home countries.

Foreign companies having their business in India also have the advantage of not facing the rigours of laws related to management of human resources such as the Civil Rights Act of the USA, compulsions of co-determination of Germany and a few European countries and compulsory collective bargaining as in existence in the USA and a few European countries. Besides, they do not have to face the problems of visa restrictions, rigid immigration laws and regulation of supplies.

There are, however, legal constraints on dismissing, discharging, retrenching or otherwise separating specified categories of employees under the Industrial Disputes Act, 1947. Besides, most of these countries do not have to face problems of language and skill and expertise of personnel needed for manning positions at various levels. These companies also have the advantage of outsourcing of specific operations, the facilities of which are in abundance in the country.

The Indian companies having their businesses abroad do not have to face many problems in recruitment and selection of suitable candidates for their enterprises as a sufficient number of qualified and competent people with managerial and technical skills and specialisation are available in the country for foreign assignments.

They can conveniently be sent to countries having English as the major language. Many of the Indian students acquire efficiency in different foreign languages, which do not only enhance their career prospects, but also contribute to the success of the enterprises in the host countries.

Only in a few cases, both the Indian and foreign companies avail of the services of third-country nationals.

2. Training and Development (T&D):

Training and Development is an important area which calls for special attention in international human resource management. Although a sufficient number of qualified people with requisite academic background is available in India, they need suitable training to develop skills and capabilities commensurate with requirements of jobs assigned to them.

Different foreign and Indian companies have their own specific areas of operations, and their needs for equipping employees with essential capabilities vary. In the situation of fierce competition among firms, it becomes imperative for them to keep their employees at the level of maximum efficiency.

It is the task of training and development programmes to ensure that employees at all levels of organisational hierarchy are effectively trained and developed keeping organisation’s objective at the forefront.

Some more notable areas of T&D programmes in international businesses comprise the following:

(i) Language efficiency

(ii) Understanding of the social and political environment of the host countries; (iii) Awareness of the cultural and social environment.

(iv) Adaptability to changing situations

(v) Efficiency in the use of the computers, Internet and other electronic devices.

(vi) The needs of employees’ career development.

As the extent and dimension of competition, technology job requirements, market conditions and government policies change, so also it is necessary to arrange for suitable training programmes on a continuing basis. Some of the methods used for training of managers and executives in international perspective comprise job rotation training, simulation, conferences, case study and Internet-based training.

Many reputed companies have started laying increasing emphasis on professional development in order to enable employees to achieve their carrier-related goals. T&D programmes must also cover proper understanding of legal framework of the host countries including labour and social security laws and those related to compensation and personnel matters.

3. Compensation:

In international human resource management, compensation issues are of vital importance. Companies engaged in foreign businesses must offer lucrative compensation packages to all categories of employees in order to attract and retain talented and competent personnel.

It must also be emphasised that labour cost has increasingly become an important component of the total cost of business operations. Although the use of improved technology in various areas of business activities has tended to replace manpower by electronic and other devices, the total expenditure on wages and salaries has continued to rise.

While formulating compensation policies and determining compensation packages, it is necessary to give due consideration to the standard of living, prevailing rates of remuneration, statutory regulation of wages and fringes benefits, cost of medical care and income tax laws of the host countries. People of various countries prefer to work in gulf countries as their emoluments are income-tax free.

Labour laws of many countries also lay down minimum standards related to paid holidays, vacation time pay, maximum daily and weekly hours, minimum rates of wages statutorily fixed, liability of the employers in regard to social security benefits and payment of gratuity and bonus. As there are wide variations in practices in different countries of the world, international human resource management must take into account the implications of these variations.

Other pertinent aspects that deserve particular attention in international compensation management, especially in regard to higher positions, include the following; remuneration paid by competing firms; consistency with international standards; need for career development of employees; simplicity in administration; and stability in the retention of talents with a view to maintain the services of talented and indispensable executives. Many MNCs have started offering stock ownership and equity-based compensation, long-term incentives, profit-sharing and team-based remuneration to them.

4. Performance Appraisal:

Regular performance appraisal of various categories of functionaries in foreign business is also important in international human resource management. It is rather very difficult for the home- country management to evaluate performance of employees working abroad. The task of performance appraisal of such employees may be entrusted to competent appraisers of the host country.

However, the home-country management may formulate guidelines and lay down the standards for key jobs. Certain guidelines for appraisal may be related to objectives of assignment, emphasis on quantifiable measurement for the assignment, converting qualitative behaviour into quantifiable measurements, evaluating employees’ performance on these measurements and making calculations of return on investment (ROI).

It is always desirable to provide feedback which can be helpful in making appraisal objective and transparent. Foreign companies sometimes have to face the problem of biases and prejudices by host-country appraisers, impact of unforeseen situations and also group-pressures. Many foreign companies have started increasing adoption of 360° appraisal. Email has generally been helpful in making both the appraiser and appraisee aware of the relevant issues in performance appraisal.

Certain Other Areas in International Human Resource Management:

A specific area deserving attention in international human resource management is the standards set by international and regional organisations in regard to the use of human resources. A particular mention may be made of the role of the ILO, European Union, (EU), South Asian Association for Regional Cooperation (SAARC), Association of South East Cooperation (APEC) and BRICS (Brazil, Russia, India, China and South Africa).

The ILO creates international standards of labour in the forms of Convention and Recommenda­tion. Conventions are obligation-creating instruments. The member states ratifying a Convention are under the obligation to give effect to its provisions by enacting labour law or under collective agree­ment or in other ways. The MNCs operating in foreign countries must abide by the provisions of ratified Conventions as embodied in labour law, collective agreement or other instruments.

Similarly, the European Union also creates norms in various areas related to the use of human resources in the member countries. Some of these norms are related to industrial relations, workers’ participation in management and rights and obligations of employers and unions. Some of the norms adopted by or­ganisations in the Asian countries also have direct or indirect relevance to the use of human resources.

The areas of activities in domestic and international human resource management are not dissimilar, but the international HRM requires revamping and modifying them taking into account the dissimilarities in the cultural, political, economic and legal environment of the countries in which they operate.

Presence

A certain charisma surrounds you if you are an influential global leader. Part of it but only part is position or title. The bigger portion is dress, self-confidence, energy level, interest in other people and comfort with the challenges at hand. You may not want to believe these things matter, but they do.

Good Negotiator

Doing business across ethnic, national and regional boundaries requires strong negotiating skills. If you can add these skills to an innate enjoyment of the gamesmanship involved in negotiating, you will become a highly effective negotiator.

Cultural Cognizance

When corporations open up manufacturing plants or distribution centers in foreign countries, company leadership needs to take the area’s cultural practices and regional values into account.

Organizational structure, for example, differs from culture to culture. In countries that traditionally emphasize social hierarchy and classes, a business executive should install a clearly defined pecking order where formal respect of those in positions of authority is expected of lower-ranked employees. On the other hand, more egalitarian cultures may function better with a less formal organizational structure.

A competent global leader is cognizant of cultural variations when choosing managers and defining employee wages, benefits, marketing strategies, and long and short-term goals.

Good Communicator

Given the challenges of working via interpreters or fumbling through conversations in more than one language, the ability to say clearly what you mean is a key global business skill. If you converse with others in their native language, you usually earn brownie points however, if what you have to say is obscure or unintelligible, you’ll quickly be in a deficit balance. Clear communication is a powerful leadership trait to have on the global stage.

Flexible Approach

The ability to communicate ideas and directives in a clear, concise manner while still taking cultural variations into account can make or break an executive. An effective leader needs to be flexible and shift his or her tactics and approach while continuing to command a room and guiding the business in the right direction. Adapting to a wide range of business challenges quickly is instrumental in leading a global organization.

Patience and timing require a flexible attitude toward unforeseen events. A flexible leader who promotes active communication between all team members and is not afraid to take risks can be invaluable to a company with a worldwide footprint, where unanticipated events may occur frequently.

Humility

Being interested in other cultures and how people in those cultures do things, especially with regard to business, implies a certain humility. Humility here means a belief that other lands and cultures have figured out very interesting answers to life’s problems. As a good international business person, you must be open to and fascinated by those answers. This trait requires a willingness and ability to listen well and with real intention.

Global Strategic Thinking

When you have a global perspective, you think strategically about managing business using the best people from around the planet. Much of your ability to do this comes from a lifetime of networking at the highest levels in global boardrooms and your aptitude for seeing how various pieces of global industries play out internationally. To make strategic decisions for your company, you need to understand how the business world works on a global scale.

Broadened Networks

The importance of networking with people in other departments or even in other businesses cannot be overstated. An effective leader is a well-networked leader. Networking at the global executive level means that instead of managing in a vertical sense, from subordinate to superior, a global leader concentrates on collaboration in every direction, horizontal and vertical.

Cautious Honesty

Surprisingly, the definitions of “Honesty” and “Truth” vary widely in the business arena. People sometimes omit information or only tell the truth they think other people need to know. However, you design your ethics and morality in your personal life, in global business settings, executives need to know they can count on you. If you don’t deliver on your business promises, your reputation will suffer. Effective global leaders can balance the need to be cautious in different contexts while demonstrating they can follow through.

Inclusiveness

Fostering an inclusive, collaborative environment can strengthen leadership with innovation. The alternative is to leave the majority of decision-making in the hands of a select few leaders, which closes off external influence and feedback. An inclusive leader cherishes feedback and ideas, especially from those who hold a variety of points of view different from his or her own.

HR departments of multinational organizations invest a lot of resources and effort into selecting and training expatriates, and most concentrate on knowledge training and behavior modification training relevant for specific cultures, according to the report. They are guided by a cross-cultural perspective that ‘emphasizes differences and similarities of values and behaviors among countries’.

However, because multicultural teams operate in a global context, with people from different nationalities working together to accomplish a global mission, ‘comparisons between different national cultures not desired’.

For over thirty years the emphasis and progress on equality and diversity has been ongoing but slow. Globalisation and demographic change are putting further pressure on organisations to develop and manage equal opportunity and diversity strategies to improve performance and promote competitive position. Furthermore, the CIPD defines diversity as: ‘valuing everyone as individuals as employees, customers and clients’ so diversity is a broader term of equality which aims to improve the opportunities of disadvantaged groups within an approach inclusive of all employees rather than focusing on the disadvantaged as in equality approach. Some of the main diversity issues may include:

• Age discrimination
• Bullying and harassment
• Disability
• Equal pay
• Race discrimination
• Religious discrimination
• Sex discrimination

There are four fundamental business activities that contribute to an organization’s dynamics.

First, planning requires management to structurally define departments and divisions. Managers set measurable goals that will define future actions and decisions. Organizational planning may involve inventory control, production scheduling, revenue forecasts and expense management. Managers use these plans as the actionable foundation for all their regular duties.

Second, goal execution involves implementing, evaluating and following up with expected deliverables. In order to accomplish this, managers must allocate resources and responsibilities to employees based on skills and schedules.

Third, leadership involves hands-on, exemplary oversight that drives innovation, knowledge and performance.

Fourth, resource control refers to how executives and management establish systems that gather data which is used to determine if goals are met.

Every company will have managers who are responsible to monitor and control certain business functions. At the heart of an organization’s dynamics lies human resources management, which is concerned about optimizing employee performances. HR managers are trained to improve individual and organizational effectiveness through applying relevant behavioral sciences and HR management principles.

Project managers drastically impact a company’s dynamics and overall performance. Successful project managers will ensure quality through careful planning that addresses risk, communications and progress management. They also create open forums that empower vendors, employees and shareholders to share information. Project managers directly impact the financial health through financial monitoring and integrated cost controls.

Functions that effect

A business entity needs a positive work environment so that every employee can give their best and boost the individual as well as organizational dynamics of that place. A small business must function smoothly so that it can show profit margins.

It is a fact that some business functions can harm business activities. Hence, it becomes essential that the management recognizes such events and take appropriate action plan so that the organizational dynamics remain unchanged in the workplace.

1. Quality Control

This is a crucial business function because an organization has to set up quality control measures so that the employees can bring out the best possible qualitative work.

The management appoints a quality control supervisor to check the work that has been produced and identify any related issues and problems. This is no doubt an effective measure to boost the quality, but it also harms the employees. Some of them might not be comfortable with the idea that the supervisor is keeping tabs on them and their workflow, and this can cause dissent and disharmony.

It is effortless to change organizational dynamics when things do not go in your favour or to your liking. The environment which at one time inspired cooperation and teamwork can easily be replaced by suspicion and resentment via a critical business function and that is quality control.

2. Productivity Improvements

Business entities will try to maximize their production to boost their sales figures and ultimately, revenue margins. For this purpose, it becomes essential to initiate measures that will include penalties as well as bonuses. The management even implements necessary processes and appoints a workforce to monitor the production and related operations closely.

This will help to understand the relevant issues so that measures can be taken to eliminate or minimize them. The employees often misunderstand the reason for these measures. It seems intrusive to them and this is why some try to resist and put obstacles in these efforts. It has the power to cause a rift and disrupt the organizational dynamics.

Thus, make sure to take the employees in confidence while implementing productivity improvements so that the employees’ keep on working in a friendly environment and the business can avoid reluctant and disgruntled employees.

3. Cost Controls

The primary reason for establishing a business entity is to earn profits, and the best way to do so is by boosting sales and minimizing costs and expenses. A business needs to control its costs from day one so that they do not go out of hand and remain within the framework. The single most important expense is the payroll that a business has to pay its employees and workers as salaries and wages.

In several cases, it is seen that a business entity will try to cut down on extra and unnecessary expenses like overtime and take cost control measures like cutting down on wages and salaries.

This can spread discontent and fear amongst the workforce and result in unproductive behaviour, for instance, minimized efficiency and productivity. Thus, cost control measure can be a disaster and result in unfavorable organizational dynamics if not handled in an efficient manner

4. Staff and Professional Development

An essential function of a business organization is to provide learning and training skills to the employees to enhance their know-how and boost the levels of efficiency. This positive effort on the part of the organization is not a welcoming effort for every employee.

No doubt some will give it a thumbs-up, but numerous employees will consider it as a burden they will have to bear. For such employees, it is not a choice or a suggestion but an order.

It is up to the management to make it clear to its employees that these are professional development measures that will improve the skills of the employee and help him in reaching a step high in their career ladder. Recognize the fear and uncertainty of the employee as he might not be comfortable in handling new technologies, and this is why he has been against the training movement.

Reassure your workforce and make sure to take them in confidence if you are interested in maintaining a positive environment in the workplace that will not disrupt the organizational dynamics.

National Culture

Different countries have different cultures, and nations are distinguishable from each other by a shared cultural history like religion, language and racial identity. Moreover, what creates a common culture include shared language, religious and moral values, history, relationships between the individual and group, and other elements. It is for this reason that Hofstede postulates that national culture relates primarily to deep-seated values. In fact, his study found that national culture explains 50% of the differences in managers’ attitudes, beliefs, and values.

Organizational Culture

As people work together to achieve collective goals, groups tend to develop into organizations. As goals become more specific and longer-term; and work more specialized, organizations become both more formal and institutionalized. Thus, organizations normally tend to take on a life of their own thereby developing widely held beliefs, values, and practices. This situation results into distinction between one organization and another and the difference often affects the organization’s success or failure. It is important, therefore, that international organizations understand, manage and utilize appropriate CCHRM practices so that their companies survive and increase their success.

Culture as System

In this context, culture is perceived as an entity or a concept worthy examining and analyzing. Culture is “created, embedded and developed” and can be “manipulated, managed and changed”. He further argues that the “dynamic processes of culture creation and management are the essence of leadership” and that leadership and culture are two sides of the same coin. Adding to that, Brown (1998) lists 14 different definitions of culture and states that in 1952, the anthropologists Kroeber and Kluckhohn isolated 164 different definitions of culture. Literature also tells us that most cultural change models, [Brown (1998) for a detailed exploration of five of these models] are, like Schein’s model, largely based on a systems understanding of organizations and are concerned with large-scale changes of the ‘whole system’ through planned processes of intervention which is heavily dependent on the leader who is a designer and implementer.

It is worth noting that professional cultures develop through socialization as individuals receive the socialization during their training and occupational education. Socialization is reinforced through the individuals’ professional experiences and interactions that lead to a broad understanding of how their occupation should be conducted. Moreover, Trice and Beyer concluded that professional cultures shape up as people share a set of norms, values, and beliefs related to their occupation. Sirmon and Lane’s research findings suggest that professional, cultural differences are often the most relevant and salient cultural differences that the interacting employees face, and thus professional culture differences are the most disruptive to the alliance’s effectiveness in achieving its primary value-creating activities. It is for this reason that organizations and business firms use training and other strategies to induct their employees, so that cultural elements do not negatively affect operations and drives to achieve goals.

Impact of Culture on Organizational Performance

There is ample research which indicates that culture has a mammoth impact on the performance of any business and that the impact is even stronger on international companies. This scenario is said to be because cultural differences can directly impact on the success or failure of a project. Therefore, it was deemed very important to establish how different cultures impact on the international business companies in Rwanda as a proxy.

Impact of HRM on Business Performance

Human resources management (HRM) is defined as implementation of policies and practices needed to carry out the “people” or human resource aspect of a management position, including selection, job definition, training, performance appraisal, compensation, career planning and encouraging employee participation in decision making (Sanders, Shipton, and Gomes, 2014; Storey, 2014). From another point of view, HRM is defined as a process for the development of abilities and the attitude of the individuals, leading to personal growth and self actualization which enables the individual to contribute towards organizational objective. Human resource management is associated with all the managerial functions involved in planning for recruiting, selecting, developing, utilizing, rewarding, and maximizing the potential of the human resources in an organization. Comparative advantages and organizational performance are largely derived from organizational human resources management and high involvement of human resource management practices. Although, in most of the developing countries the main struggle is going on to find out best ways to optimally utilize these practices.

One other point to note is that effective use of cross-cultural teams in an organization can provide a source of experience sharing and innovative thinking to enhance the competitive position of organizations. However, cultural differences can also interfere with the successful completion of projects in today’s multicultural global business community. To achieve project goals and avoid cultural misunderstandings, project managers should be culturally sensitive and promote creativity and motivation among their staff. This could be done through flexible leadership; application of CCHRM theories, use of motivational orientation, orientation toward risk, definition of the ‘self’ versus ‘others’, improvement of attitudes to time and the environment. We will later focus on motivation and training of multicultural project teams and relevant implications for international business management.

The focus of this study was on HRM domains of selection, training, job description, performance appraisal system, compensation system career planning system and employee participation with relation to cross culture. In the field of human resource management and behavioral sciences, plenty research and debate indicate that there is a positive correlation between effective HRM practices and organizational performance. The effect of selection, performance appraisal, training, and compensation system and employee participation with organizational performance. Out of these practices, only selection, training and employee participation had positive impacts on organizational performance and market performance of the organization.

From other studies, job definition and career planning system have been established to have a negative and insignificant impact on business performance. For instance, Organizational performance and competitiveness can be enhanced by utilizing high-performance work system. In another study, Arthur (1994) found that steel mills that use an HRM ‘Commitment System’ have higher productivity levels than those that do not. On the other hand, companies interested in enhancing HR performance may emphasize the need for staff empowerment and training.

In a few studies, however, there is no clear effect of HRM practices on productivity. For instance, Kelley found that HRM practices do not affect performance of organizations. Batt also found out that HRM practices do not pay off in small organizations that operate in local markets. Cappelli and Newmark identified that HRM practices may increase productivity slightly, but they also increase labor costs. In a different study, Huselid (1995) established that HRM practices are statistically significant and have positive effect on corporate financial performance of the organization. It can, therefore, be seen that numerous researchers found a relationship between corporate financial performance and HRM practices. For example, Flamholtz (1985) and Cascio (1991) concluded that financial returns associated with investments in progressive HRM practices are generally substantial. Schmidt (1979) explored that increasing one unit of employee performance is equivalent to 40% of salary increase. Each of these studies has emphasized the impact of HRM on organizational performance.

For understanding cultural issues in organisational setting against international perspective, it is essential to understand employee behaviour. Five basic conclusions can be drawn about cross-cultural impact on employee behaviour:

First, individual behaviour in organisational setting varies across cultures. Thus, employees based in India, Japan, U.S. and Germany are likely to have different attitudes and patterns of behaviour. The behaviour patterns are likely to be widespread and pervasive within an organisation.

Second, culture itself is an important variable for this variation. There are also other factors like differing standards of living and varied geographical conditions which cause variations in behaviour. However, culture is a significant factor.

Third, although behaviour within organisational setting remains quite diverse across cultures, organisations themselves appear to be increasingly similar. Hence, managerial practices at a general level may be alike, but the people who work within organisations differ markedly.

Fourth, the same manager behaves differently in different cultural settings. A manager may adopt one set of behaviours when working in one culture, but may change those behaviours when moved into a different culture.

Lastly, cultural diversity can be an important source of energy in enhancing organisational effectiveness. More and more organisations are realising the virtues of cultural diversity, but surprisingly, little do they know how to manage it.

Different Communication Styles

The way people communicate varies widely between, and even within, cultures. One aspect of communication style is language usage. Across cultures, some words and phrases are used in different ways. For example, even in countries that share the English language, the meaning of “yes” varies from “maybe, I’ll consider it” to “Definitely so,” with many shades in between.

Another major aspect of communication style is the degree of importance given to non-verbal communication. Non-verbal communication includes not only facial expressions and gestures; it also involves seating arrangements, personal distance, and sense of time. In addition, different norms regarding the appropriate degree of assertiveness in communicating can add to cultural misunderstandings. For instance, some white Americans typically consider raised voices to be a sign that a fight has begun, while some black, Jewish and Italian Americans often feel that an increase in volume is a sign of an exciting conversation among friends. Thus, some white Americans may react with greater alarm to a loud discussion than would members of some American ethnic or non-white racial groups.

Different Attitudes Toward Conflict

Some cultures view conflict as a positive thing, while others view it as something to be avoided. In the U.S., conflict is not usually desirable; but people often are encouraged to deal directly with conflicts that do arise. In fact, face-to-face meetings customarily are recommended as the way to work through whatever problems exist. In contrast, in many Eastern countries, open conflict is experienced as embarrassing or demeaning; as a rule, differences are best worked out quietly. A written exchange might be the favored means to address the conflict.

Different Approaches to Completing Tasks

From culture to culture, there are different ways that people move toward completing tasks. Some reasons include different access to resources, different judgments of the rewards associated with task completion, different notions of time, and varied ideas about how relationship-building and task-oriented work should go together.

When it comes to working together effectively on a task, cultures differ with respect to the importance placed on establishing relationships early on in the collaboration. A case in point, Asian and Hispanic cultures tend to attach more value to developing relationships at the beginning of a shared project and more emphasis on task completion toward the end as compared with European-Americans. European-Americans tend to focus immediately on the task at hand, and let relationships develop as they work on the task. This does not mean that people from any one of these cultural backgrounds are more or less committed to accomplishing the task, or value relationships more or less; it means they may pursue them differently.

Different Decision-Making Styles

The roles individuals play in decision-making vary widely from culture to culture. For example, in the U.S., decisions are frequently delegated that is, an official assigns responsibility for a particular matter to a subordinate. In many Southern European and Latin American countries, there is a strong value placed on holding decision-making responsibilities oneself. When decisions are made by groups of people, majority rule is a common approach in the U.S.; in Japan consensus is the preferred mode. Be aware that individuals’ expectations about their own roles in shaping a decision may be influenced by their cultural frame of reference.

Different Attitudes Toward Disclosure

In some cultures, it is not appropriate to be frank about emotions, about the reasons behind a conflict or a misunderstanding, or about personal information. Keep this in mind when you are in a dialogue or when you are working with others. When you are dealing with a conflict, be mindful that people may differ in what they feel comfortable revealing. Questions that may seem natural to you What was the conflict about? What was your role in the conflict? What was the sequence of events? may seem intrusive to others. The variation among cultures in attitudes toward disclosure is also something to consider before you conclude that you have an accurate reading of the views, experiences, and goals of the people with whom you are working.

Different Approaches to Knowing

Notable differences occur among cultural groups when it comes to epistemologies that is, the ways people come to know things. European cultures tend to consider information acquired through cognitive means, such as counting and measuring, more valid than other ways of coming to know things. Compare that to African cultures’ preference for affective ways of knowing, including symbolic imagery and rhythm. Asian cultures’ epistemologies tend to emphasize the validity of knowledge gained through striving toward transcendence.

Recent popular works demonstrate that our own society is paying more attention to previously overlooked ways of knowing.4 Indeed, these different approaches to knowing could affect ways of analyzing a community problem or finding ways to resolve it. Some members of your group may want to do library research to understand a shared problem better and identify possible solutions. Others may prefer to visit places and people who have experienced challenges like the ones you are facing, and get a feeling for what has worked elsewhere.