Chapter Overview

Chapter Title: International Human Resource Management (IHRM)Focus: Policies and Practices for Multinational Enterprises (MNEs)Authors: Ibraiz Tarique, Dennis R. Briscoe, and Randall S. Schuler

Learning Objectives

• Define the development and process of strategic international human resource management (SIHRM).

• Understand the evolution of multinational enterprises (MNEs) during internationalization and the various market entry methods employed.

• Explore the MNE and IHRM strategy development processes and their interrelationship, focusing on how they adapt to market demands.

• Review research trends in strategic IHRM, including the impact of globalization on HR practices.

Strategic International Human Resource Management (SIHRM)

• Focus: Creating IHRM policies/practices that are not only aligned with but also enhance the MNE's international strategy.

• Components: Encompasses the strategic management of the IHR department, wherein HR initiatives support overall business goals in diverse markets.

• Engagement: Active engagement in global strategic planning is crucial for aligning HR functions with organizational objectives while considering local market conditions.

Evolution of Multinational Enterprises (MNEs)

• Stages of Evolution: MNEs evolve through multiple stages during internationalization—these stages include exporting, establishing a local presence, and full integration into the market.

• Market Entry Methods: Each stage requires distinct market entry strategies such as joint ventures, wholly-owned subsidiaries, or strategic alliances, influencing organizational structure and HR practices.

• Complexity: The complexity and scope of IHRM responsibilities increase significantly as the level of international activity rises, requiring sophisticated HR capabilities to manage diverse and dispersed workforces.

Internationalization Process

• Stages of Internationalization: MNEs typically undergo five stages—domestic, international, multinational, global, and transnational—each necessitating unique market entry methods and varying degrees of local adaptation.

• Relationship Dynamics: The relationship between MNE strategy and IHRM strategy evolves, with the need for ongoing adaptation to external challenges and international market dynamics.

MNE Business Strategy

• Guidelines for Management: MNE business strategy guides subsidiary management direction, carefully balancing integration with local responsiveness.

• Integration vs. Local Responsiveness:

  • Integration: The degree of cohesion and standardized practices between subsidiaries and headquarters.

  • Local Responsiveness: The ability of subsidiaries to customize offerings and practices to cater to local market differences, including cultural, legal, and economic factors.

Types of Strategic Business Approaches

• Global: A unified strategy across multiple countries, which typically overlooks cultural differences and standardizes offerings.

• Transnational: A strategy that seeks to achieve both global efficiency and local responsiveness, effectively balancing the two through a hybrid approach.

• International: This approach employs a simple strategy with minimal local adaptation, allowing for consistent brand messaging while leveraging home-country practices.

• Multi-Domestic: Focused primarily on catering to local markets, this approach allows each subsidiary to operate independently to meet diverse customer needs effectively.

Headquarters’ International Orientation

• Influence on Subsidiary Practices: The orientation adopted by the HQ significantly influences subsidiary management and HR practices, affecting areas such as recruitment, training, and culture integration:

  • Ethnocentrism: A dominant home-country perspective that guides HR practices and can hinder local adaptability.

  • Polycentrism/Regiocentrism: Emphasizes the importance of local practices, encouraging subsidiaries to adopt HR policies that align closely with their local context.

  • Geocentrism: Focuses on creating a globally integrated network whereby the best practices from various locations are shared and adopted organization-wide.

IHRM Strategy Formulation

• Balancing Act: The strategy formulation process must balance centralization (integration) with decentralization (local responsiveness) to effectively meet global and local objectives.

• Convergence vs. Divergence:

  • Convergence: Involves the uniform application of parent-company policies across all subsidiaries, often leading to standardization in HR practices.

  • Divergence: Focuses on the necessity for adaptation to local cultural and institutional contexts, allowing subsidiaries flexibility to respond to specific market demands.

IHRM Strategy Effectiveness

• Alignment with Business Strategy: The effectiveness of the IHRM strategy is heavily dependent on its alignment with the overarching MNE business strategy—successful integration can lead to enhanced performance.

• Influential Contextual Factors: Compliance with local laws, cultural expectations, and organizational goals play critical roles in shaping the success of IHRM strategies.

IHRM Strategy Types

• Receptive: Subsidiaries maintain a tight linkage with headquarters, implementing HR policies with minimal local adaptation, often leading to high consistency in practices.

• Active: This approach allows moderate control over HR decisions while enabling some local adaptations to cater to specific market needs.

• Autonomous: Provides subsidiaries with full autonomy to develop local IHRM practices, resulting in deeper integration within local markets and potentially higher employee engagement.

Research on SIHRM

• Impact of Local Culture: Local culture and managerial orientation significantly shape HR practices, necessitating nuanced approaches to effective management.

• Global Mindset: An effective global mindset not only impacts MNE global strategies but also influences HR focus and practices, which can lead to improved organizational performance.

Frameworks for Understanding SIHRM

• Various Models: Several models and frameworks address the integral role of IHRM in MNEs, including:

  • Strategic components of MNEs that detail how IHRM intertwines with overall business strategy.

  • Factors that influence IHRM policies and practices, such as market conditions, legislative changes, and cultural norms.

  • Key concerns and organizational goals that IHRM must address to enhance effectiveness in a global context.