Internationalization and Globalization inHuman Resource ManagementJózsef PoórProfessor of Management (University of Pécs),...
1    BasicsMore than 40 years ago Fayerweather (1960), and some years later Bormann(1968) wrote about the difficulties of ...
trade books from the same area (Franke-Bodon, 2003; Olfert, 2003; Hentze, 1995)discuss HRM, intercultural management and t...
companies to increase the number of their expatriates to a great extent. Warveterans, who spoke foreign languages, were no...
3.1    ExpatriatesA very strong differentiating factor between domestic and international HRM isthe existence and role of ...
human resource policy. From our aspects we would like to emphasize the processof localization only, which means that as th...
on human resource tasks related to collective bargaining and strikes (Hiltrop,    1991; Poór-Roberson, 2003).    The human...
the Hungarian, Polish and Czech advantages in terms of time and volume madethe differences between the practices of local ...
[12]   Dowling, P. J. (1986): Human Resource Issues in International Business.       Syracuse Journal of International Law...
[30]   Koubek, J. - Vatckova, E. (2004): Bulgaria and Czech Republik: Countries       in Transition. In: Brewester, C. - M...
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  1. 1. Internationalization and Globalization inHuman Resource ManagementJózsef PoórProfessor of Management (University of Pécs), Managing Director (Mercer Ltd)email: jozsef.poor@mercer.comAbstract: The concept of internationalization can be defined in many ways. According to atypical definition, this is a process through which the international presence of a companyincreases, while a local company extends its activities to foreign markets, and establishesnew units in other countries that increases its ability to produce added value (Galbraith,2000). In order for a company manufacturing solely for the local market to be a globalcorporation acting on a worldwide scale it has to go through several stages ofdevelopment. Generally, the globalization of a company is a longer procedure. The so-called globally born companies can enter into foreign markets even if they did not havesignificant domestic sales activities, and did not go through the above mentioned process.Such companies try to organize the available resources and their sales in a way thatinstantly provides competitive advantage through their activities extended to variouscountries. For these companies domestic market is not that important. For them the wholeworld is one single market, they do not bind themselves to one country alone. Aprerequisite of competitiveness is that companies should be present on a market not justthrough their products, but also directly (eg. with their own company or with a jointventure). However, this situation has significantly increased the headcount employed byforeign subsidiaries. Today in most multinational companies the number of employeesworking abroad exceeds the number of those working in the parent country to a greatextent. Besides dealing with expatriates, these companies have to take even more care ofthe various places, and the regional and global aspects of human resource management.Human resource management (HRM) in this article is a group of functions mutuallybuilding on each other that enable the efficient utilization of human resources, with boththe personal and the organizational objectives taken into consideration (Karoliny et al2003). In this article we give an overview on the basics of international human resourcemanagement (IHRM), its typical orientations, the factors differentiating betweenHungarian and international human resource management, and also on specific IHRMtrends.Keywords: Culture, Expatriate, Globalisation, Human Resource Management,International Human Resource Management, Internatinalisation, Localisation
  2. 2. 1 BasicsMore than 40 years ago Fayerweather (1960), and some years later Bormann(1968) wrote about the difficulties of expatriates in different cultures. But it is alsoimportant to emphasize that for a very long time in publications only foreign trade,investment and marketing aspects had an outstanding role in relation to theglobalization of companies. Until now the most influential theory of internationalhuman resource management was published by Perlmutter in 1969. According tothis author the IHRM practice of various multinational companies is largelydepending on how their local human resource management practice (ethnocentric)is followed abroad, or how they adapt to the local (polycentric), regional(regiocentric) and global (geocentric) conditions.The earlier state of IHRM studies can be well described by one single sentencetaken from Laurent (1986): "If HRM is in its infancy, then IHRM is still anewborn baby."The need for an independent international human resource management (IHRM)was expressed clearly only in the 1980s (Dowling, 1986; Morgan, 1986,Ackermann, 1991, Domsch-Lichtenberg, 1991).In their latest book the authors Dowling-Welch (2004) state that the model ofIHRM can be described along three dimensions: The broader category of the typical activities of HRM (recruitment, expatriation and further employment). Those larger categories of countries, where the IHRM activities are carried out (parent country, target and host country, other countries) Country categories and origins of larger groups of employees (parent, target or host, third country nationals)Adler and Ghader (1990) believe that international HRM has a close relation withthe fact that a company enters into the international market (exports,representation, joint venture, whole-owned company).Taylor et al (1996) and Lado-Wilson (1994) state that IHRM can contribute to thedevelopment of multinational companies with the development of personalcompetencies.Brewster-Hilary (1999) say that IHRM is much more than arranging HRM issuesof expatriates in an international context. They believe that IHRM deals with theworldwide management of human resources.The most well-known HRM books and some business management books alsotouching on human resource management from the German-speaking area(Hentze-Kammel, 2001; Haubrock, 2004; Scherm-Süss, 2003; Jung, 2004) do nottalk about human resource issues arising from globalization. Other manuals or
  3. 3. trade books from the same area (Franke-Bodon, 2003; Olfert, 2003; Hentze, 1995)discuss HRM, intercultural management and the issue of expatriates as an elementof globalization strategies.Representatives of various Hungarian HRM schools (Kővári, 1995; Gaál, 1999;Gyökér, 1999; Bakacsi et al, 2000; Tóthné, 2000; Pálinkás-Vámosi, 2002; Roóz,2002) do not pay special attention to the international aspects of HRM. Althoughthe situation has been changing recently as a result of various research studies onculture (Bakacsi et al, 2002; Borgulya-Barakonyi, 2004; Jarjabka, 2003),communication (Borgulya, 2004) and international management (Simai - Gál,2000; Poór-Farkas, (eds), 2001). As a result of the work of the HRM team in Pécs,established by the author, the first extensive handbook on the topic appeared in1996 (Poór et al, 1996) and since 1999 the HRM aspects of globalization arementioned separately in the handbook on Hungarian HRM (Poór et al, 1999;Karoliny et al, 2003).According to studies international human resource management covers differentfunctions. For a long time authors mainly examined the recruitment andassignment of expatriates, and also how their repatriation can be assured. Therewere significant research activities regarding this topic, where researchers mainlyexamined issues related to the recruitment, remuneration, benefits and laborcontracts of expatriates. It is clear from references in the studies that by now thesituation changed significantly, and researchers widened the scope of their surveys– although differently in terms of detail and attention – to cover new topics, suchas global values, organizational culture, intercultural communication, and – last,but not least – HRM issues related to the local employees.2 Evolution of IHRMRegarding evolution of IHRM Evans et al (2002) state that three distinct phasescan be identified in the history of this field. The first, so-called pre-scientificperiod covers nearly 2000 years and lasted until the beginning of the 20th century.In this period there were already some international ventures (eg. the East-IndianCorporation, or the shipping companies), but during these years IHRM was not inthe focus of management attention.According to the above author the beginning of the first real era of IHRM datesback to the period when the first companies established their offices andsubsidiaries abroad. At the beginning of World War I dozens of companiesoperated already on an international field. The globalization of business forcedcompanies to send expatriates into management or consultant positions to theirforeign concerns. By the 1960s the 180 examined American companies had anaverage of 6 subsidiaries abroad (Evans et al, 2002). This significant growth urged
  4. 4. companies to increase the number of their expatriates to a great extent. Warveterans, who spoke foreign languages, were not always the appropriate persons,who would be able to transfer knowledge and experience abroad. In this period itbecame clear that in order to be successful in globalization it is indispensable toadapt to various national cultures. In the above period knowledge sharing betweenheadquarters and foreign concern had a typical hierarchical form. The direction ofknowledge flow was from headquarters or regional centers to subsidiaries. Thefast, and sometimes not well-considered human resource management soon had itsconsequences. A survey made by Tung (1982), often quoted in IHRM studies,showed that several expatriates caused many difficulties to the parent companies.In many cases the work performance of local subsidiaries deteriorated or becameimpossible as a result of the activities of the expatriates. IHRM became auniversity discipline in this period (Evans, 2002), and Hofstede (1980) publishedhis culture theory, that is still popular today.The third period of IHRM started at the end of the 1980s, when globalizationbecame even stronger. As a result of globalization companies were striving evenstronger to implement network-based solutions, instead of hierarchical knowledgetransfer and coordination. A special feature of this localization procedure was thatthe HRM departments were mainly led by locals even at the time when othermanagement positions were rather filled by foreign managers. Besides expatriatesmore and more inpatriates appeared in multinational companies (that is, localsdelegated from subsidiaries to headquarters). In the 1980s many multinationalcorporations recognized, that their decision-making system needs somerestructuring. This led to the reduction of the headcount of oversized units inheadquarters, and also to the reduction of the number of expatriates. Local expertswith a better understanding of local culture got more significant roles. Thelocalization process first became stronger in the developed countries, where veryexpensive expatriates were gradually sent home and replaced by locals. In the1990s HRM and IHRM supported many restructuring procedures and brought thisfunction closer to management. As a result of the new tasks, new techniques hadto be worked out. This was the time when – besides job/position-based HRM – themethods of person-based (or competence-based) human resource managementappeared.3 Factors Differentiating between Local HRM and IHRMFurther on, we will examine what are the most important factors that could explainthe differences between domestic HRM and international IHRM.
  5. 5. 3.1 ExpatriatesA very strong differentiating factor between domestic and international HRM isthe existence and role of the so-called expatriates, who move from country tocountry, and there, having an employment for a shorter or longer time period,become the residents of the receiving country. The concept of the traditionalexpatriate has been extended in several countries, and in many companies they arestarted to be called as "international assigners". Another new concept alsoappeared relating to the assignment of locals from the receiving country to theparent country, and recently they are called inpatriates (Dowling-Welch, 2004).3.2 More HR ActivitiesHR departments of companies operating in an international environment have toperform several activities that are not necessary at all on a domestic level. Aclassical example in IHRM textbooks is the international taxation, which meansthat HR departments have to be familiar not only with the taxation of domesticincomes, but also with practices in those countries, where the expatriates of thecompany are working.3.3 More Insight into the Private Life of EmployeesThe HR departments of companies operating in several countries all over theworld, with respect to the internal management and decision processes, extendtheir attention to all affected countries, and to all employees supervised directly(eg. managers and the management candidates as well).Information technology today provides an almost personalized trackingpossibility. Under this we mean the global human resource databases andemployee satisfaction surveys conducted on a global scale with the support of IT.There is a larger interference with the private life of employees. This is aninteresting and special issue of international IHRM. This characteristic feature ofthe field is related to the fact that often the failure of expatriates is not caused bytheir poor performance, but the improper adaptation of their family members(Dowling-Welch, 2004). So, multinational companies start to put large emphasison the family members and eventually on their specific needs already in theselection phase.3.4 Maturity Phase of a Foreign SubsidiaryI have already examined in various publications (Bangert-Poór, 1993, 1995) howchanges in the maturity of the local subsidiary affect its management and its
  6. 6. human resource policy. From our aspects we would like to emphasize the processof localization only, which means that as the management and employees of alocal subsidiary become more and more experienced, the parent companygradually repatriates or relocates the foreign human resource, that is much moreexpensive than the locals (Dowling-Welch, 2004). Another characteristic featureof the maturity of a subsidiary can be when several local employees aretransferred into an inpatriate status, mentioned previously, while others get foreignassignments in a region close to the local subsidiary (eg. Eastern Europe).3.5 Employment RisksThe eventual failure of expatriates can largely be due to the special risk factors ofa countrys environment arising during an assignment. For a long time, countriesof the third world were pioneers in this respect, while after 11 September 2001this issue was seen from a different angle. The threat of terrorism soon appeared indeveloped countries as well.3.6 Specific Impacts of the External EnvironmentVarious countries behave differently towards multinational companies. Very oftenthey provide a large degree of freedom for them, while in other cases (eg. in theCzech Republic) they require a language exam even for expatriates having aformal labor permitIn the above paragraphs we tried to explain – without aiming to give a full picture– that for companies operating in an international environment human resourcemanagement has several special characteristics. Among those are the following: International human resource management – compared to a purely domestic HRM – is more complex and requires the consideration of much more factors, due to the very different places of its application and the different legal and cultural environments. Several functions of human resource management (planning, administration, planning and analysis of jobs) are the same, but some activities need to be extended in line with the special requirements of the international operation. Here we can mention, that eg. not only the employee, the future expatriate needs to be known, but also his/her family. Are there kids? How old are they? Do they need special health care? In the majority of the cases foreign companies have a more developed human resource operation, than the locals do. They apply especially efficient methods on the field of work performance, communication, induction of new employees and career management, while local companies concentrate mainly
  7. 7. on human resource tasks related to collective bargaining and strikes (Hiltrop, 1991; Poór-Roberson, 2003). The human resource management models of companies operating in different legal, institutional and economic environments cannot be completely standardized. Therefore it is important to highlight, that the practice established in the environment of the parent country has to be adjusted to the economic, legal and political relations and culture of the country hosting the subsidiary.4 IHRM from the Aspect of the Local SubsidiaryIn different management cultures (Fahy et al, 2003) we can see that multinationalcompanies led by foreign management overperform local companies. If we take acloser look at the various research materials it is also evident that there are severalinteresting phenomena behind this general statement. For example, the successesof large multinational corporations usually can be explained by the optimalbalance they manage to find between global standardization and efficient localresponses (Bartlett-Ghoshal, 2000).In those cases where the excellent knowledge of domestic customers was crucialin giving the appropriate responses in line with local requirements, it happenedvery often, that local companies defeated their multinational rivals (Fahy et al,2003). Foreign companies are much more efficient in transferring tangibleresources (money, brand) than the locals, while locals are better in realizing theso-called softer capabilities. If we link this statement to the knowledgemanagement concept (Polányi, 1976; and others), then the above statement willalso mean that probably multinational companies are able to transfer the explicitmanagement knowledge – eg. job evaluation system, job description, etc. – that iseasy to encode, in a much better and more efficient way to the local staff.However their competitive advantage is not that significant in terms of knowledgethat is difficult to encode.The effects of the role and strength of foreign capital in the management of localsubsidiaries are influenced by several social, economic and historical specialities(Wild et al, 2003; Fatehy, 1995; Hill, 2003). Researchers also identified severaldifferences among the Eastern European countries. These differences weredemonstrated on the field of marketing (Rekettye-Fojtik, 2004), corporate strategy(Barakonyi, 2004), company culture (Barakonyi-Borgulya, 2003) and humanresource management (Koubek-Vatckova, 2004; Alas-Svetlik, 2004), as well.In respect of our topic it is important to mention that, besides the above listedgeneral characteristics, the role of foreign capital is also influenced by the functionof FDI in the country of the survey. At the time when the survey was conducted
  8. 8. the Hungarian, Polish and Czech advantages in terms of time and volume madethe differences between the practices of local and multinational companies moreapparent, if we make a comparison with countries like Slovenia or Romania,where the presence of multinationals is still much smaller. Russia should bediscussed separately. As a result of tradition, size and culture this country shows acompletely different picture in restructuring corporate management and the HRfunction. The entry and settlement of foreign companies is much slower and theprocess is much longer here. Parallel with this, the restructuring of companies isalso much slower (Morgan-Thorpe, 2001), but due to the size of the country theprofit outlook on the long term is much more promising.References[1] Ackermann, K. F. (1991): Strategisches Personalmanagement im Visier der Wissenschaft. In: Ackermann, K. F.- Scholz, H.: Personalmanagement für 90er Jahre. Stuttgart[2] Adler, N.- Ghader, F. (1990): Human Resource Management: A Global Perspective Human Resource Management in: Pieper, R.: International Comparison. Walter de Gruyter, Berlin[3] Alas, R.- Svetlik, I. (2004): Estonia and Slovenia: Building Modern HRM Using a Dualist Approach. In: Brewester, C.- Mayrhofer, W.- Morley, M.(eds.): Human Resource Management in Europe Evidence of Convergence? Elsevier, London[4] Bakacsi et al (2000): Strategic Human Resource Management. (In Hungarian) Közgazdasági Jogi Könyvkiadó-Kerszöv, Budapest[5] Bangert, D. C.- Poór J. (1995): Human resource management in foreign affiliates in Hungary. In: Shenkar, O. (ed.): Global Perspectives of Human Resource Management. New Jersey: Prentice Hall[6] Barakonyi K.- Borgulya I-né ( 2003): Company Culture. (In Hungarian). Nemzeti Tankönyvkiadó, Budapest[7] Borgulya I. (2004): Inter-cultural Communication. (In Hungarian) PTE KTK, Pécs[8] Borgulya I. – Barakonyi K. (2004): Vállalati kultúra. Nemzeti Tankönyvkiadó, Budapest[9] Bormann, W. A. (1968): Personalwirtschaftliche Sonderprobleme internationalen Unternehmungen. Diss. München[10] Brewester, C. – Hilary, H. (eds.) (1999): International HRM. Routeledge, London[11] Domsch, M. - Lichtenberger, B. (1991): Konsequenzen der Internationalisierung für das Personalmanagement. Gabler’s Magazin, No. 2, pp. 21-25
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