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International Human Resource Management - Section 1

Answer all of the following questions. Each question is of equal value of 2.5 marks.

  1. Why is it important for an MNE to globally standardize its HRM?

Globally standardization of HRM practices facilitates consistency, transparency and an effective alignment of a geographically fragmented workforce around common objectives and principles. This helps me to have a transnational corporate strategy which is supported by organizational structure and is reinforced by a shared corporate culture.

  1. Explain how an international assignment is both a training and a development tool.

International assignments allow individuals to develop intercultural competence and global business acumen. Through international job rotations, long term global assignments and multinational team assignments, international assignments act as an effective development tool for global businesses. Such assignments also facilitate a “global mindset”, and helps to shape perspectives of effective global leaders.

  1. What is Hofstede’s five dimensions of culture?

Hofstede’s five dimensions of culture, namely, power distance (PDI). Individualism versus Collectivism (IDV), Masculinity versus femininity (MAS), Uncertainty Avoidance (UAI) and Long-term Orientation (LTO) helps to understand how value differences among different cultures can affect human behaviour at work.

  1. What are the advantages and disadvantages of the balance sheet approach to international compensation

Some of the key advantages of the balance sheet approach include equity between assignments and between expatriates of the same nation, facilitating re-entry and easy communication. On the other hand, its disadvantages include, disparities among expatriates of different nations and between local nationals and expatriates, it can be complex and makes it difficult to attract human capital.

International Human Resource Management - Section 2

1. Identify and discuss the similarities and differences between domestic and IHRM?

Human resource management (HRM) is a crucial issue for both international and domestic organizations and small and medium-sized firms as well. It is also at the heart of many important business aspects including political, social and cultural issues. HRM also seeks to add value to the well being of employees and organizational performance through the adaptation of best practices in the management of activities and people. Therefore, both domestic and international HRM seeks to find promising concepts and practices in terms of sociology, psychology and critical disciplines, which in turn creates several differences in both HRM approaches due to difference in the operating environment. This essay suggests that while IHRM and domestic HRM have many similarities, they also have important differences in terms of HR strategy planning, recruitment, training, employee relation, engagement, appraisal and the role of an HR specialist.

HRM is the process of managing people within the organizational activities and commonly include planning of human resources, staffing, benefit and compensation, activities management, development and training, and industry relations. Also, within an international context, HRM includes related issues in terms of companies all over the world and MNCs in different organizations. One of the most noticeable differences between domestic and international HRM is HRM processes and activities change to different foreign performance and international environment. Initially, different nations have different operations for employment. For instance, as compared with domestic HRM, IHRM can be attributed in a different manner; one example of this is of Apple. Apple company in Australia has to adhere to Australian business law, which includes framework and guidelines for the company and customers, as the Australian government takes responsibility for the protection of customers. However, in the case of China, there are no such frameworks, or at least to such extent and the company has to change its operations accordingly.

There are also differences in HR activities as HR activities in an international environment are not same as in a domestic context due to changes in taxation policies, government policy regulation, administrative services, orientation, language and transportation. Therefore, the firm’s recruitment and selection differ from one nation to another. Moreover, institutional values and norms are also based on the features of the national business system which further contributes to the differences in the HRM practices. For instance, German companies provide vocational training programs to give learning opportunities and experience to employees, while such a training system is also non-existent in France. Also, the international business includes more intensive movement and interaction of people across counties and differences of language, culture and attitude are essential. Multinational companies like Apple has a large number of employees from all over the globe, despite the fact that its headquarters is based in the US. This leads to differences in the attitude of employees from different countries which can also be considered as a cultural problem. Therefore, HR specialists change their HRM approach in international contact to deal with this issue which is not present in a domestic context.

On the other hand, both domestic and IHRM have a number of similarities. Whether international or domestic, HRM programmes are developed on more or less similar basic principles of allocation, procurement, motivation and utilization. Multinational business environment under which both international and domestic human strength to cope with organizational difficulties and to acquire management and technical skills is required. In addition to this, both IHRM and domestic HRM have same function and planning process for the same. Therefore, HR activities under international contact are very similar to that of the domestic one. As under both contexts, the HR manager has to plan for human resources, attract and hire suitable employees for the organization, develop and train them, ensure appropriate compensation, and maintain proper motivation among organizational members. This suggests that while HR practices in domestic and IHRM differentiate due to the differences in the organizational environment, both of them are based on common principles of human management.

While differences in domestic and international HRM is mainly due to the complexity created by the involvement of different counties and different organizational environment, both of them are similar in terms of major function and activities of HR plan, people management, recruitment, reimbursement, commercial relations, training and development, and determination. Therefore, HR managers in a domestic context only have to deal with people of their own country and are mostly aware of the socio-political environment of the nation. Under international context, one has to understand the different economic, social and legal aspects of different countries and the way such cultural and interpersonal variations affect organizational and employee performance.

  1. Describe the main differences in the ‘going rate’ and ‘balance sheet’ approaches to international compensation.

From the organizational point of view, one of the most important aspects of expatriation is of expatriate compensation. Compensation packages should be designed in such a manner that they are able to attract, retain and motivate employees while balancing the cost with the expected returns at the same time. While there are different factors such as the number of potential candidates and the attractiveness of the assignment destination requires flexibility in the compensation practices, some common methods and guidelines exist to support the same. In a broad sense, there are two different approaches to expatriate compensation, namely the going rate approach and the balance sheet approach.

The balance sheet approach is one of the most commonly used approach and under this approach, the main idea is to maintain the standard of living of the expatriate throughout the assignment at the same level as it was in the expatriate’s home country. Therefore, one can state that this approach is about ensuring the same purchasing power expatriate which helps to maintain the expatriate’s lifestyle. Another key notion of this approach is that it suggests matching the salary of the expatriate with home county peers, not with the colleagues of the host country. On top of the home country salary, the cost of living adjustments for the host country is usually made. Such adjustments are usually made using the “no loss” approach, under which expatriate compensation is adjusted upwards to in accordance with the higher costs of living, but is not adjusted downwards if the cost of living is less in the host country.

On the other hand, the going rate approach, also known as “destination”, “localization”, or “host country-based” approach, the key principle is to link the compensation of the expatriate to the salary structure of the host country. This also takes the compensation levels of local employees and the local market rates under consideration. This method aims to treat the expatriate employee as a citizen of the host country. The key advantage of this approach is that it supports equality with local nationals, its simple, supports identification with the host country and facilitates equity among different nationalities. But at the same time, this has its disadvantages which variations between assignments for the same employees, potential re-entry problems, and variation between assignees of the same nationalities in different countries. Similarly, the balance sheet approach facilitates equity between different assignments and between assignees of the same country and supports assignee re-entry. However, it can lead to disparities between assignees of different countries in the same country and between local nationals.

Therefore, it is evident that in terms of the difference between the going rate and the balance sheet approach the key difference is the basis used to design the compensation package. While the going rate, the approach uses the salary structure of the host country as the base while designing the compensation package of expatriates, the balance sheet approach uses the current lifestyle of the expatriate in the home country. Moreover, the going rate approach tends to be more cost-effective as compared to the balance sheet approach as “going local” can reduce the market adjustment costs of the host country, which can be especially tempting to send expatriates in nations with relatively lower salaries. Yet, the balance sheet approach is most commonly used as the motivation and attraction of potential candidates for assignments is usually more important for international companies than cost-saving. However, regardless of the compensation method being used, organizations should ensure that they fulfil certain basic needs of expatriates which includes considering the daily life challenges faces by organizational members in foreign countries which suggests a need for extra attention to medical care, spouse matters, housing, security, and home trips. In the end, it is crucial to take the “wholeness” of the concept under consideration concerning the compensation packages. This will ensure that expatriate does not experience an overt loss or gain when different elements of the compensation packages are combined as one. Therefore, while finding a right balance between the expatriate's and the organization's perception of this “wholeness” can be difficult, the underlying intention of not letting the expatriate experience any drastic changes in his or her lifestyle is paramount.

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