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

Culture plays an important role in life of people as it is closely associated with them. It is very necessary to understand what a culture requires and what emotions are attached to it. Different countries follow different culture and because of this some things will be acceptable in some countries whereas the same things will appear to be rude in other countries because of culture difference. People who are culture sensitive will know that the difference between the culture of different people can create differences in their relationship with respect to the way they behave, communicate etc. Hofstede defined culture as “the manner in which the mind is programmed such that it can differentiate the people of one category with those of other.” a culturally sensitive person should try to adapt the culture of other country, their traditions, their way of living, their lifestyle etc.

Nowadays people are getting closer to each other so toleration, dialogue between people of different culture and respect towards their culture and respect for diversity becomes more important. Learning and trying to understand the customs and culture of the foreign country indicates respect for the other country and for any business relationship to be successful respect for each other is very essential.

Many employers feel and have sensed that cross cultural sensitivity is an important skill and proper care should be taken when dealing in and trading with international market. In domestic market people will know what to do and how to do but to achieve the same motive in different country with the same concept and then getting success by using same interpersonal professional skills is more important. Proper training should be provided should to the staff about the nature of the place, its scope and language, values and aesthetics.

When people are traveling from one country to another it is necessary that they do a research about the culture of the country in which they are traveling so that they can go well prepared, which can save them and people around them from any embarrassing situation. Doing business internationally means management of culture of different countries and for maintaining international business relations, people will have to deal with that countries norms, rules, values and regulations. Overall people need to involve in the culture of different people and try to adapt to their cultural skills and style. Right type of knowledge for right kind of job is very essential for doing business globally. The ability to negotiate better, understanding the cultural problems and becoming an insider often give a competitive edge in the business. Managers should possess high level of managerial skills as the relationship between various business networks depends upon the manner in which the manger interact and behave with international clients and how much capable they are in dealing with crossing cultural boundaries. Cross cultural training helps in improving success by trying to improve the level of personal cultural awareness and this will help in understanding the culture of other people.

Cultural Sensitivity in Business-to-Business Interactions

Carol Campbell is a new fashion designer who has developed a line of accessories sold through local boutiques. Recently, a popular fashion journalist noticed her collection and featured several pieces in an editorial spread. Suddenly, Campbell’s products are in demand all over the country, forcing her to step up production of her purses, headbands and scarves.

After speaking with several trusted advisors, she decides to outsource production to a factory in China. Although she is able to develop a list of reputable operations, she is told that it is best to fly to China directly to meet with factory owners and to inspect the facilities.

Carol gets her visa and books a ticket to China. In the weeks between deciding to make the trip and actually getting on the plane, Carol spends time learning more about Chinese culture and even begins a course in Mandarin.

When she arrives for her meetings with factory owners, Carol is nervous but more confident than she might have been otherwise. She greets her hosts in Mandarin and they appreciate her taking time to learn some Mandarin. In addition, she is familiar with certain aspects of Chinese culture and business etiquette, which creates a favorable impression.

At the end of her trip, Carol is confident that she is selecting the right factory to manufacture her goods and help her take her business to the next level.

Cultural Sensitivity in Working With Customers

Ellen operates a casual restaurant close to a small, private college. Six years ago, an alumnus passed away, leaving his entire, and very large, estate to the school. In his will, the donor requested that the school establish an international studies program that would actively recruit students and faculty from other countries.

Now in its third year of operation, the program has an excellent administrative team and is attracting top academic talent from around the world. Yet Ellen’s café has experienced a dip in business.

Some visitors to the café have mentioned that Ellen’s menu, largely consisting of American-style diner food such as bacon and eggs, cheeseburgers, creamy soup and meatloaf can be difficult to navigate for some of the international students. The difficulties include lactose intolerance, which is common in many countries, and religious prohibitions against eating meat or certain types of meat.

Realizing that she needs to make changes, Ellen reaches out to one of the patrons who mentioned the need to update her menu and asks for feedback. The patron suggests that Ellen contact the head of the international program and bring together a focus group of students who can give feedback on dietary preferences.

After talking with students in learning about their concerns, Ellen talks to her cooks. After trying out some new recipes and tweaking their offerings, Ellen’s restaurant debuts a new menu that features vegan dishes, customizable burgers (including veggie burgers), build-your-own omelets and an extensive salad bar.

The new menu is a great hit and Ellen’s restaurant is busier than it has ever been. Ellen recently contacted a real estate agent to look into moving to a larger building so that she can accommodate more customers.

Consequences of Cultural Ignorance and Insensitivity

Cultural insensitivity and ignorance can take a toll on your business. The damage may be internal, by alienating and distressing employees, or damaging negotiations and relationships with other businesses. In addition, consumers are increasingly demanding that businesses demonstrate a commitment to cultural respect. Failure to do so could result in loss of reputation and sales.

Disgruntled employees: Employees like to feel appreciated and respected by their employers. When employees don’t feel this way, they can become anxious, angry and depressed. They may also feel uncomfortable bringing up their concerns with management because they feel it will not be taken seriously or may even face retaliation.

Missed business opportunities: Cultural gaffes can derail negotiations and result in missed opportunities. Most business people are professional and understand that not everyone fully understands the nuances of their culture. However, a failure to make an effort to educate yourself, and your team, about the cultural norms of a vendor or retailer could result in giving offense and make negotiations more difficult.

Brand damage: Cultural insensitivity can deeply offend customers and the general public. Exposure to cultural insensitivity can be painful for people from that culture and could result in damage to your company’s image and reputation.

How to Develop Cultural Awareness and Sensitivity

Developing cultural awareness and sensitivity begins within a business’s own culture. Once leadership makes it clear that respect for other cultures is an important part of how the company operates, it can become easier for the company as a whole to reflect these values.

One important part of cultural sensitivity is not making assumptions about other people and their cultures. It can be helpful for companies to contract with third-party consultants who specialize in training organizations in cultural sensitivity.

Human resources professionals can also be helpful in this area. Asking HR staff to stay educated on cultural issues and to be receptive of feedback from employees is another way of putting your company’s values into practice.

Comparative Human Resource Management, on the other hand, is a systematic method of investigation that seeks to explain the patterns and variations encountered in cross-national HRM rather than simply describe HRM institutions and practices in different societies. Different national business systems arise from differences in specific historical, cultural and institutional heritage in certain countries. Comparative differences occur due to decisive historical events such as the process of industrialization or due to the legacy of pre-modern forms of social organisation. Hofstede adopted the ‘culturalist’ perspective where he argued that national business styles emerge due to ingrained cultural attitudes and mental schemas. He described culture under five dimensions which are power distance, individualism, masculinity, uncertainty avoidance and long-term orientation.

Comparative Human Resource Management focuses on specific countries, areas within the country, or different regions of the world. Countries usually possess different political and economic systems, employment, education laws, labour markets, as well as cultural expectations; therefore, all these issues should be taken into account to apply HRM policies and systems.

In spite of globalization, different countries have different human resource policies in place that regulate the way firms manage their human resources. In addition, people from different regions have different cultures and beliefs and values that must be incorporated into the management of human resources in multinational corporations.

Human Resource Management policies and practices are becoming universal and that country-of-origin effects are no longer relevant. The pressure to build standardized operations internationally is strongest in sectors where competition is highly internationalized and where firms compete on the basis of a similar product or service across countries such as in cars and fast foods. They have put forward several reasons to explain this trend. Firstly, all MNCs operate in one global market and therefore have to respond to the same environmental pressures such as globalization and technology, the growth in international trade and the move towards an internationally-integrated financial system. Secondly, the widespread practice of benchmarking ‘best practice’ in terms of cost, quality and productivity may also have contributed to convergence of international HRM models for e.g. Japanese style ‘lean-production’ system in the 1980s and 1990s. Moreover, these pressures towards convergence stem in part from the influence of MNCs themselves through their ability to transfer practices across borders and erode country-of-origin effects. Finally, the formation and development of like-minded international cadres mostly from American or European business schools may have contributed to homogenized international HRM policies and practices.

Since the early 1990s, the international HRM literature has been dominated by models and typologies aimed at identifying how international HR fits with organisational strategy. The main issue for all multinational companies is the need to trade-off the advantages global efficiency namely the coordination of its operations to achieve economies of scale and scope as opposed to the need to differentiate its products and services to meet the local demands. They also identified a third pressure, namely worldwide innovation and learning, whereby firms are encouraged to support innovation and learning across their network of subsidiaries rather than simply relying on research and development at the headquarters. MNEs then follow the appropriate HRM policies and practices according to the structure of the organisation, the competitive strategy chosen or stage of corporate evolution reached. Taylor’s model of strategic international HRM has been described below.

Exportive: This is essentially a model where the HQ management takes home country management approach and try to implement them in their foreign subsidiaries in order to achieve economies of scale. In this model, there is a system of hierarchy and a centralized control. This is especially useful in instances of uncertain political environment and high risks demanding greater control from corporate parents. Given this pattern of centralization, there is a considerable amount of ‘forward policy transfer’ and less ‘reverse transfer from subsidiaries to the HQ, i.e. they rely mainly on the technical know-how of the parent company. Global firms offer products or services that are standardized to enable production to be carried in a cost-efficient way. Their subsidiaries are not subject to rigid control except over the quality and the presentation of the product or service. This structure is normally associated with the American firms with their formalized, bureaucratic control and a dominant finance system to internalize risks.

Adaptive: Differences in the host environment demands and conditions mean that overseas subsidiaries have to operate independently. This is common where departing from established practices in host environments is unlawful. For example, in some Germany, there is a legal obligation to negotiate with employee representatives concerning major organisational changes. In other cases, transferring practices may be legal but would go against traditional practices at the risk of losing goodwill from staff. Firms may decide to forgo HQ control if there is the possibility to exploit most efficiently the local labor markers. For example, MNCs which origin from high-cost highly regulated economies such as Germany may well choose not to transfer important elements of their HR systems such as collective bargaining or apprenticeship if they move to lower wage, lightly regulated economies such as China.

Integrative:  It is also argued that the more management processes and activities can be integrated across geographical boundaries, the easier it is to share resources and knowledge. They can identify and best use the skill and management talent that exists across the MNC network allowing for both global integration and local differentiation.

As mentioned previously, international HRM processes consist of the same activities as domestic HRM but applied in an international context. These include an accurate human resource planning to ensure that the MNCs have the right people at the right place around the world, good staffing policies that capitalise on the world-wide expertise of expatriates and locals, performance appraisals that fit with the competitive strategies of the HQ, adequate training and development to ensure that expatriates do not suffer from “Culture shock” and compensation policies that are strategically and culturally relevant. The focus in international HRM strategy is how MNEs coordinate their geographically dispersed operations strengthening the organisational culture, promoting commitment and encouraging willingness in employees to act in the interests of the firm.

Related Issues of Comparative and IHRM to Globalization

Performance

Globalization encourages global operations of an organization. The ability of an organization to operate on a global scale means that there are many firms operating in the same market and industry. As the firm operates at the global level, the common performance of employees and the organization in general is of great importance.

This is because the firm is operating at a higher level in markets characterised by free entry and exit. In order to sustain its existence in the market, the organization needs to maintain its performance.

This calls for high performance from the employees of the firm. It is the duty of the international HRM to adopt policies that maximize the performance of employees such as good compensation and motivation policies.

Working Conditions

The environment in which employees of a multinational corporation work is very important for the performance of the firm. Employees require good working conditions including a good management that is characterised by good leadership skills.

Although different organizations apply different leadership styles, it is important that transformational leadership and other inspirational leadership be applied to motivate employees to perform.

Both IHRM and CHRM concur that a good working environment characterised by high levels of communication and teamwork could helps employees gain high levels of autonomy, learning and excellence thereby improving their performance.

Technology

Advanced technology is an outcome of globalization. Many firms are utilizing technology to establish a competitive advantage either in reducing costs, marketing, improving manufacturing processes or for doing business via channels such as e-commerce and e-business.

Management of diverse human resources calls for has applied technology as different applications are used to develop employee databases for organizations. Due to technology, multinational organizations operating in different countries and regions are able to management their human resources from a central location.

Irrespective of the background, employees are required to use different devices and appliances used to perform different tasks in organizations. Human resource management in companies operating in different countries do train their employees in order to upgrade the system and technology.

Labour Relations and Laws

Both Comparative and international human resource management for firms operating in the global business environment are required by the international labour organization to adhere to international labour regulations regarding hiring and treating of employees.

Additionally, the regulations in the countries of operation are required to reflect the internationally accepted labour regulations. Comparative HRM adheres to cultural elements while observing international and country employment regulations, which is similar to the international human resource management.

Strategy

Strategy is important to both International and Comparative HRM. Both firms of managing human resources perceive the global business environment as being dynamic and characterized by uncertainty.

Therefore, human resource management should involve the aspect of strategic human resource management that incorporates different strategies that could help a multinational organization maintain its competitiveness in an uncertain environment.

Due to this, many organizations operating in many countries across different countries incorporate different strategies that are in line with the strategies of the organization in order to maintain competitiveness.

According to Anthropologists, cultural shock involves anxiety and doubt caused by an overload of unfamiliar expectations and social cues.

Because of differences in culture, an employee posted outside his or her home country will experience confusion, alienation, disorientation, and emotional upheavel. This is known as culture shock. An executive transferred from India to Korea, for example, would experience anxiety because of alien culture, foreign langauge, unaccustomed climate and unfamiliar food habits. But the anxiety is less when s/he is posted to Singapore where one comes across large number of Indians and hotels run by Indians.

Many employees of multinational corporations do not know how to deal with a cultural adjustment process. This experience can be painful and devastating. At its extreme, it can prevent growth and self-actualisation. When an individual’s psychological security is threatened, the consequences may not be healthy for him, his family, or the organisation represents.

Managerial responses vary across cultures. Specific behaviours depend upon attitudes managers hold about employees. Managerial responses are shaped by the cultures of the land. Managers in Japan, for instance, strongly believe that a manager should be able to answer any question s/he is asked. On the other hand, Swedish managers have the least concern for knowing all the answers. In France, the manager’s role is thought to be that of an expert, whereas in the U.S. the manager is viewed as a problem solver.

Managerial behaviour is rapidly changing, particularly among European managers. In general, these managers are becoming better educated, career-oriented, more willing to work co-operatively with labour, more willing to delegate, and more cosmopolitan.

Factors causing culture shock

Language

Despite having a good grasp over the language spoken in your study country, it will be a new experience altogether when you interact with the locals in real-life. The country may have some local slangs as part of their daily language which you will get used to over time. For example, Canadians call $1 a loonie and $2 a toonie; and one of the most common coffees here is a Double-Double.

A different way of living

You realise it fairly quickly that your way of life has completely changed. This newfound independence can be very overwhelming. With a sudden change in your routine life, it can get difficult to understand how to cope without it. Since every decision you make will impact your life directly, it is important to be responsible and take control. For instance, if you do not cook your meal or do your laundry or buy groceries or finish your projects, nobody else will.

Weather Conditions

In Canada, you might experience a new degree of cold during winters. Similarly, in the UK, you’ll experience more rains than you expected, while in Australia, you’ll experience winters and summers at different times of the year than what you are used to. Such factors can also be stressful as any change in climate may impact your health when you are least expecting it. You’d be surprised however, that life in these countries never stops because of the weather conditions and neither should you.

New Societal rules

There are always some unspoken, well-understood rules in every society, such as your new environment. These rules have a direct impact on the day-to-day functioning of the society. For instance, when in Canada, it is common to say “thank you” or “sorry” too often at very minuscule of things. If not, you might be considered rude, despite you not intending to. In Australia, a stranger may call you a mate, even if meeting for the first time.

Academics

Every country has a different education system and with it comes a new structure, teaching methodologies, scoring patterns, project works, deadlines, scholarships, etc. Sometimes, there is just too much information to put together and get used to at once. Don’t get overwhelmed with this new information and try to understand each slowly to be able to adapt to it.

Missing home or food

It is obvious to miss home or your cuisine you’ve grown on. The best way to deal with it is to find shops or restaurants that offer the things you like. You can also learn to cook and invite friends over so it doesn’t make overly homesick. Better still, pick up your phone and make those calls home.

Poor Time management

Being an international student, it is important to manage time properly. For example, if you miss a given deadline for a project, you might lose valuable grades. Sometimes, due to the lack of schedule (either too much to do or excess free time), your schedule may go for a toss. It is helpful to prioritise your activities and strike the right balance between work and recreation time.

Common symptoms of culture shock

Homesickness

It is common to miss your home country and the people you’ve left behind. It also happens if you are unwilling to adapt to your new conditions, trying to stick as close to the things you did back home. It is best to adapt and let yourself discover new things and build new memories.

Anxiety, Depression or Loneliness

These symptoms are fairly common to experience early on when you are still in the process of adjusting to the new environment. The seriousness may vary depending on the individual.

Disturbed sleep patterns

It is normal to have a disturbed or distinguished sleep pattern (earlier due to jet lag, later on due to difference in time zone). However, this may extend further due to extensive thinking, stress, lack of confidence, or related reasons.

Decreased productivity

Due to the inability to cope with stress, some students find it difficult to perform academically or professionally. Sometimes, students face issues with understanding the new education system. It is important to identify what is causing this distress and deal with it.

Various Stages of culture shock

Stage 1: Excitement

This is when you arrive into the country, with an eagerness of meeting new people, starting a new program, exploring new places, etc. This stage offers the opportunity to explore as much as you can to get to know about the societal norms.

Stage 2: Shock

This is when your excitement settles down and you understand new responsibilities and tend to isolate yourself. This is a stage of self-realisation and an opportunity to plan your approach. Remember, it’s okay to be stressed, but don’t let it get to you. Talk to someone if required to.

Stage 3: Acceptance

This is when you start getting used to the cultural norms. It could be the longest stage as you start adjusting to your new life, make new friends and have a better vision of your goals. It helps to connect with people who’ve had similar experiences to get some advice.

Stage 4: Adaptation

This is when you’ve adapted to your new society and are an active part of it. In fact, you are aware enough to guide your fellow mates, newcomers from your experiences. You are no longer affected by the cultural differences and focus on a positive, brighter future.

Scope

Human resource activities

HR activities in an IHRM context involve procurement, allocation, and utilization of workforce. These functions in turn cover all the six activities of human resources management, that is, human resource planning, hiring, training and development, remuneration, performance management, and employee relations.

Countries of operation

The countries of operation in an IHRM perspective involves the host country in which the overseas operation is located, the home country that houses the headquarters of the company, and other countries that supply labour and finance.

Origin of employees

The origin of the workforce of an international business can be classified into three types; parent country nationals, host country nationals, and third country nationals.

Functions

On-the-Job Training

Even when an organization hires skilled employees, there is normally some level of on-the-job training that the human resources department is responsible for providing. This is because every organization performs tasks in a slightly different way. One company might use computer software differently from another, or it may have a different timekeeping method. Whatever the specific processes of the organization, human resources have a main function in providing this training to the staff.

The training function is amplified when the organization is running global operations in a number of different locations. Multiple sessions in numerous international locations may be called for, although online webinars and training tools can sometimes effectively reach anywhere on the globe. Having streamlined processes across all locations makes communication and the sharing of resources a much more manageable task.

Recruitment and Onboarding Process

Attracting, hiring and retaining a skilled workforce is perhaps the most basic of the human resources functions. There are several elements to this task including developing a job description, interviewing candidates, making offers and negotiating salaries and benefits. Although a complex task for any business, it is made more complex in the international arena due to differences in educational systems from one country to the next and, of course, difference in languages.

Companies that recognize the value of their people place a significant amount of stock in the recruitment function of HR, no matter where in the world hiring takes place. There is good reason for this having a solid team of employees can raise the company’s profile, help it to achieve profitability and keep it running effectively and efficiently.

Benefits and Compensation

While the management of benefits and compensation is a given for human resources, the globalization of companies in the twenty-first century has meant that HR must now adapt to new ways of providing benefits to an organization’s employees. Non-traditional benefits such as flexible working hours, paternity leave, extended vacation time and telecommuting are ways to motivate existing employees and to attract and retain new skilled employees. Balancing compensation and benefits for the organization’s workforce is an important HR function because it requires a sensitivity to the wants and needs of a diverse group of people.

Ensuring Legal Compliance

The final function of human resource management is perhaps the least glamorous but arguably of utmost importance. Ensuring legal compliance with labour and tax law is a vital part of ensuring the organization’s continued existence. The federal government as well as the state and local government where the business operates impose mandates on companies regarding the working hours of employees, tax allowances, required break times and working hours, minimum wage amounts and policies on discrimination.

Continuing Professional Development

Closely related to training is HR’s function in professional development. But whereas training needs are centred around the organization’s processes and procedures, professional development is about providing employees with opportunities for growth and education on an individual basis. Development often entails moving an employee between departments so that he or she gains skills in multiple areas. For an international operation, this may also mean moving employees across boundaries.

Many human resource departments also offer professional development opportunities to their employees by sponsoring them to visit conferences, external skills training days or trade shows. The result is a win-win: it helps the employee feel like she is a vital and cared-for part of the team and the organization benefits from the employee’s added skill set and motivation.

Due to the growth of internationalisation and global competition, the role of International Human Resource Management (IHRM) in those Multinational Corporations (MNCs) grows in significance.

Employers rely on IHRM to deal with global HR challenges.

IHRM refers to the human resource management concepts and techniques employers use to manage the HR challenges of their international operations, including acquiring, training, appraising and compensating employees, and attending to their labour relations, health and safety, and fairness concerns.

IHRM and domestic HRM share similar core functions, including recruitment, selection, employee learning and development, diversity and equality, and remuneration.

International human resource management functions cover many different activities related to a business organization’s employees and contractors. The first and most important is the staffing needs of the company whether staff members are company employees or outside contractors. Other functions include recruiting and training employees, ensuring that they are performing at expected levels or better, handling performance issues and making certain that personnel and management policies conform to laws and regulations. International human resource management is also involved in how the company manages employee compensation and benefits, employee records and personnel policies and practices.

The primary difference between domestic human resource management and international human resource management is the added knowledge and responsibilities required due to foreign operations. These typically include language (in non-English speaking offshore organisations), the local and national regulations and laws governing business operations within a foreign country; currency exchange rates, career outlooks, company benefits and incentives and, perhaps most important. The ethics and etiquette expectations of foreign business contacts. International human resource management people must understand these differences clearly and stand ready to keep other company people informed of them to prevent embarrassing situations and unintentional ‘affronts’ from occurring

Basic human resources are a management activity while human resources development is considered a profession. The latter is targeted more specifically to developing personnel inside organisations through career development, organizational development and training activities. Both functions have undergone very-significant evolutions during the past several decades so that they now play major roles in staffing, managing and training people so that the will perform in an optimum manner for the organisation. Today, international human resource management is the fastest-growing subset of HR due to the growing trend for global business operations.

To achieve a competitive advantage in the global market, effective exploitation of human resources is of significant importance. To be in competition and have sustainable advantage it is necessary to manage internal resources in efficient way. For sustainable advantage in competition, creation of value is important, but it should be rare, it must be inimitable, and must be non-sustainable.

For the sustainable competitive advantage, human resources are the most important factor as it is inimitable, non-substitutable as well as valuable and rare.

Valuable

For sustainable competitive advantage, resources must be valuable. The demand for labor is different in different firms and it is more different across the countries than it is within the countries due differences in availability of capital, difference of labor practices and social and cultural norms which are related to the work. The labor supply is also different across countries than within the countries due to difference in hygiene, health care, nourishment, training and educational opportunities. As competition becomes more global, there is an opportunity for creating value through human resources.

Human resources must have control, information, awareness, recognition and rewards to be the source of competitive advantage.

Rare

To be source of sustainable competitive advantage the resource should be rare. Human skills are distributed normally in the population and are rare. Human resources vary in worth, and different jobs require different skills and finding these skills are rare. International firms have and can draw more labor pool; they have great potential for developing the valuable and rare resources than the domestic firms which draw from only labor pool.

Inimitable

It will be more difficult to imitate the resources in the presence of causal ambiguity and social complexity.

• Causal ambiguity: Exists when their imperfection in understanding of the link between a firm’s resources and competitive advantage. If the firm which is in the competition is not able to identify the human resources which are responsible for competitive advantage, they cannot imitate the advantage. Causal ambiguity is caused mainly due to team production. When the work is done in team, it becomes difficult to identify who had contributed maximum to achieve the goal.
• Social complexity: It may arise from the transaction-specific relationships. The competitive advantage can be gained due to complex social situation. Even when the relationships are too complex, it is better to consider the value of relationship which may be due to the human transactions. The value can be developed due to the knowledge and trust which had been developed over the time. Human interaction may lead to social complexity.

In the global competition, the social complexity and causal ambiguity act as a barrier to imitation. It becomes difficult for the outsiders to understand the competitive advantage due to differences in customs and norms. The imitation becomes impossible due to religion, culture and political alliances.

Non-substitutable

To stay in the competitive global environment there should be no good substitute available. Finding the good substitute is the difficult task. Human resources are the factor which can be transferred across the technologies, products and markets. Human resources are thus valuable. If the firm has obtained high level of learning capabilities then providing good training ensures that resources do not becomes out of date.

International Human Resource Management (IHRM) involves ascertaining the corporate strategy of the company and assessing the corresponding human resource needs; determining the recruitment, staffing and organizational strategy; recruiting, inducting, training and developing and motivating the personnel; putting in place the performance appraisal and compensation plans and industrial relations strategy and the effective management of all these functions from an international perspective.

Economic Diversity

Economic diversity is expressed in terms of per capita income of different countries where a global company operates. Economic diversity is directly related to international compensation management, that is, paying wages/salaries and other financial compensation to employees located in different countries. One of the basic principles of paying to employees is that “there should be equity in paying to employees.” However, putting this principle in practice is difficult for a global company because its operations are located in different countries having different economic status. In such a situation, some kind of parity should be established based on the cost of living of host countries.

Language Diversity

Language is a medium of expression but employees coming from different countries have different languages. Though English is a very common language, it does not serve the purpose adequately as it does not cover the entire world. While employees coming from different countries may be encouraged to learn the language of the host country for better dissemination of the information, it does not become feasible in many cases. An alternative to this is to send multilingual communications. It implies that anything transmitted to employees should appear in more than one language to help the message get through. While there are no hard-and-fast rules in sending such messages, it appears safe to say that such a message should be transmitted in the languages the employees understand to ensure adequate coverage.

Workforce Diversity

Workforce is the building block of any organization but there is workforce diversity in global companies. Based on their place of origin, employees of a typical global company can be divided into the following groups:

• Parent-country national: Permanent resident of the country where the company is headquartered.
• Host-country national: Permanent resident of the country where the operations of the company are located.
• Third-country national: Permanent resident of a country other than the parent country and the host country.

Further, workforce diversity can be seen in the context of employee mobility from one country to another country for performing jobs. On this basis, an employee can be put in one of the following categories:

• Expatriate: A parent country national sent on a long-term assignment to the host-country operations.
• Inpatriate: A host-country national or third-country national assigned to the home country of the company where it is headquartered.
• Repatriate: An expatriate coming back to the home country at the end of a foreign assignment.

Cultural Diversity

Culture is one of the most important factors affecting HRM practices. However, when we consider international perspective of HRM, we find cultural diversity across the globe, that is, culture of two countries is not alike. Cultural diversity exists on following dimensions:

Individualism and Collectivism. Individualism is the extent to which people place value on themselves; they define themselves by referring themselves as singular persons rather than as part of a group or organization. For them individual tasks are more important than relationships. Collectivism is the extent to which people emphasis the good of the group or society: They tend to base their identity on the group or organization to which they belong. At work, this means that relationships are more important than individuals or tasks; employer-employee links are more like family relationships.

Power Orientation. Power orientation, also known as orientation to authority, is the extent to which less powerful people accept the unequal distribution of power; people prefer to be in a situation where the authority is clearly understood and lines of authority are never bypassed. On the other hand, in culture with less orientation to power, authority is not as highly respected and employees are quite comfortable circumventing lines of authority to accomplish jobs.

Uncertainty Avoidance. Uncertainty avoidance also known as preference for stability, is the extent to which people feel threatened by unknown situations and prefer to be in clear and unambiguous situations. In many countries, people prefer unambiguity while in many other countries, people can tolerate ambiguity.

Masculinity. Masculinity, also known as assertiveness or materialism, is the extent to which the dominant values in a society emphasize aggressiveness and the acquisition of money and material goods, rather than concern for people and overall quality of life.

Time Orientation. Time orientation dimension divides people into two categories: long-term orientation and short-term orientation. People having longterm orientation focus on future, prefer to work on projects having a distant payoff, and are persistent and thrift. People having short-term orientation are more oriented towards past and present and have respect for traditions and social obligations.

Factors

1. The nature of IHRM may be restricted by government policies and legal regulations in the host country.

This is especially felt in developing countries, where management and technical training within the host country’s educational system is rudimentary and the local government views the presence of MNCs as a means of developing local expertise.

2. Culture, particularly national culture at the headquarters, plays a role in determining IHRM practices. Culture may affect HQ decisions in two ways:

(a) Some cultures are simply more comfortable than others in taking an ethnocentric approach to management.

(b) The mix of cultures in the subsidiaries of an MNC and the level of cultural difference among the subsidiaries of an MNC will restrict the IHRM approach taken.

3. MNCs with extensive international experience have had the opportunity to develop more diverse methods of maintaining coordination and control over their foreign operations.
4. The method used to establish operations in foreign locations may also affect HR policies. For example, HR practises in the acquired/ merged operation will reduce the wholesale exportation of home-country HR systems into the subsidiary.
5. An MNC opening subsidiaries in developed countries face a much different IHRM challenge than one opening subsidiaries in developing countries. Developed countries have well educated staff having technical and management experience.

Therefore, there is the opportunity to develop polycentric or geocentric IHRM strategies. Whereas in developing countries a more centralised IHRM strategy is necessary.

For technologically sophisticated products, or services, the need to maintain specific production standards and quality controls necessitates a greater degree of centralisation of IHRM functions at the MNCs headquarters. Whereas in some products like food items, the host-country tastes have to be looked into to succeed in the local market.