Chapter 3 SHRM in a changing and shrinking world

3. SHRM in a
changing and
shrinking world
Asst. Prof. Dr. Teetut Tresirichod
Asst. Prof. Dr. Teetut Tresirichod 1

Learning Outcomes
● Identify some of the key background issues relevant to the
internationalization of business;
● Analyze the significance in the growth of multi-national companies;
● Define strategic international human resource management;
● Identify the key components of strategic international human
resource management;
● Explain the significance of the capability perspective on strategic
international human resource management;
● Evaluate the importance of the cultural perspective on strategic
international human resource management.

Introduction

Background to the
internationalization of
business
Definition and categorization
of international business
according to Harrison et al.
(2000). International business is
broadly divided into two main
categories:

1. International Trade: This pertains to the export and import of
goods and services across international borders. It involves the
exchange of products, services, and capital among various countries
and territories and plays a crucial role in the global economy.
2. International Investment: This is the focus of the discussion in
the text you provided. International investment is described as the
transfer of resources by companies to conduct business outside
their home country. This can manifest in various forms, such as:
• Direct Investment: Where multinational companies (MNCs)
establish wholly owned subsidiaries or acquire businesses in
foreign countries to create a permanent presence there.
• Licensing: This involves MNCs granting the rights to use their
intellectual property, such as patents, trademarks, copyrights, or
know-how, to a licensee in another country. This allows the
foreign company to use the intellectual property for its own
business purposes, often in exchange for a licensing fee.

These forms of international investment are key strategies for MNCs as they allow
them to enter and operate in international markets, tapping into new consumer
bases, and potentially benefiting from favorable economic conditions, such as
lower labor costs or tax advantages.
This classification is fundamental to understanding how businesses expand and
operate on a global scale, and it underpins much of the strategic planning that
goes into international business development. The role of Strategic Human
Resource Management (SHRM) in this context is to manage the human resources in
a way that supports these international activities effectively, addressing the
complexities of operating across diverse legal, cultural, and economic
environments. Asst. Prof. Dr. Teetut Tresirichod 6

Why do companies wish to
develop their international
business?
The decision to internationalize a
business involves complex strategic
considerations and is not always a
straightforward process. There are
several reasons why companies may
choose to develop their
international business:

1. Market Seeking: Companies may seek to
expand into new markets to increase their
customer base and sales. This often happens
when the domestic market is saturated, and
growth opportunities are limited.
2. Resource Seeking: Firms may go international
to gain access to resources that are not available
or are more costly in their home country. This
includes natural resources, cheap labor,
technological expertise, and other inputs to the
production process.
3. Efficiency Seeking: Companies might aim to
increase their efficiency by taking advantage of
lower production costs in other countries,
economies of scale, and differences in consumer
preferences or regulations.
4. Strategic Asset Seeking: This involves acquiring
assets that are strategic to the firm’s
competitiveness, such as brands, patents, or
advanced technology, which can be more readily
or cheaply obtained through international
expansion.

5. Diversification of Risk: By operating in multiple
countries, companies can spread their risks and reduce
dependence on a single market.
6. Following Clients or Competitors: Some companies
internationalize because their major clients have gone
global, requiring the company to provide support and
services in new locations. Others may follow competitors
abroad to maintain their competitive position.
7. The Bandwagon Effect: As mentioned by Ghauri
(2000), companies may also be influenced by the actions
of their competitors, leading to a 'bandwagon effect'
where they invest abroad to keep up with industry trends
and avoid losing their competitive edge.
8. Geopolitical or Economic Stability: Investing in
countries with stable political and economic
environments can be a strong incentive for companies
seeking a secure and predictable business climate.
9. Strategic Growth Objectives: Companies may have
strategic goals that can only be achieved by having a
presence in key global markets, which could include being
close to customers, having the ability to respond quickly
to market changes, or the desire to establish a global
brand.

International expansion is often
part of a broader strategic vision
to secure a company's growth
and survival in the increasingly
interconnected global economy.
Strategic Human Resource
Management (SHRM) plays a vital
role in supporting international
operations by ensuring that the
right talent is in place to manage
and operate in diverse and
sometimes challenging
international markets.

The desire to access international markets
1. Limited Domestic Market: For many MNCs, the domestic market may offer limited
growth opportunities due to its size or because the market is saturated. International
expansion allows these companies to tap into additional markets, increasing their
total addressable market and potential revenue.
2. Product Life Cycle: The concept of the product life cycle suggests that products
go through several stages: introduction, growth, maturity, and decline. To maximize
the commercial benefits of a product, especially when it is in the growth or maturity
stage and still relevant to consumers, companies seek to expand their markets
internationally.
3. Exploiting the Market While the Product is Relevant: It is important for
companies to take advantage of the global market while their product is in demand.
Delaying international expansion could mean missing out on significant revenue
opportunities, especially if the product becomes obsolete or less desired over time.
Hollywood Movies Example: The example given of the Walt Disney
Corporation illustrates how products, in this case, movies, can have a vast
international appeal and market. Hollywood movies are a prime example of a
product that has a relatively short lifecycle in which to maximize profits, due to the
rapid pace at which consumer tastes change and new movies are released.

The desire to access production
advantages offered by other countries
The rationale behind
multinational corporations (MNCs)
seeking production advantages in
other countries, from a human
resources (HR) perspective. Here
are the key points:

1. Cost-Effective Production: MNCs often move
operations to countries where they can produce
goods or services more cheaply. This could be due to
lower labor costs, cheaper materials, less expensive
real estate, or a combination of these factors.
2. Labor Considerations: From an HR standpoint, a
significant advantage sought by MNCs is access to
different labor markets. This can be motivated by:
• Lower Wages: Workers in some countries may
accept lower wages than those in the MNC's home
country, reducing overall production costs.
• Skilled Labor Availability: Some countries have a
larger pool of skilled labor, which can help MNCs
overcome shortages in their home markets.

3. Outsourcing Examples: The text mentions UK
companies outsourcing call centers to Asia, highlighting
HSBC's move in 2004 to cut call center jobs in the UK and
set up in the Philippines, where there is good-quality
telecommunications infrastructure and a workforce with
strong English-language skills. HSBC also has service
centers in India, Malaysia, and China.
4. Manufacturing Shifts: The Dyson example illustrates a
UK manufacturer relocating production to Malaysia, citing
lower labor costs and proximity to suppliers and potential
markets in the Far East.
5. Technology Sector: There is significant mention of the
technology sector, particularly in India, where there are
large pools of highly qualified IT workers. Companies like
IBM and Computer Sciences Corporation have increased
or planned to increase their headcounts in India
substantially. Additionally, tech giants like Google and
Microsoft have also expanded their operations in India,
leveraging the local talent pool for software development
and research.

These movements are often driven
by the strategic goals of reducing
costs, accessing talent, and
positioning for global market
expansion. However, they can also
have significant implications for the
workforce in the MNC's home
country, as seen in the examples of
job losses in the UK. For HR
professionals within MNCs, managing
these transitions requires careful
consideration of both the strategic
advantages for the company and the
potential impacts on employees.

To grasp opportunities in
developing markets
The strategic importance of grasping
opportunities in developing markets,
particularly highlighting the expansion
of the European Community and the
growth of the Chinese market as
primary examples.

1. European Community Expansion: In May 2004, the
European Community (now commonly referred to as
the European Union, or EU) admitted ten new countries.
This enlargement was significant as it opened up new
trading opportunities not only within these new
member states but also for the companies in the pre-
existing member states.
2. Poland's Market Potential: Poland, with its relatively
underdeveloped economy but large population of 40
million, is mentioned as an example of a new EU
member state that presents significant growth
opportunities. For European companies that had not
previously considered the Polish market, this expansion
provided a new avenue for growth.

3. China as an Emerging Market: China is presented as
the quintessential emerging market, characterized by
rapid economic growth (approximately 10% annually at
that time) and an increasing number of prosperous
middle-class consumers. The change in consumer
behavior and lifestyle, particularly the shift from bicycles
to automobiles as a preferred form of transport,
indicates a significant opportunity for Western
manufacturers.
4. Automobile Market in China: The text specifically
points out the potential in the Chinese automobile
market for Western companies. Volkswagen is cited as an
example of a Western manufacturer that could benefit
from this emerging opportunity. The growing demand for
cars among the Chinese middle class represents a
massive potential for growth for automobile
manufacturers.

When a developing market like China grows rapidly, it
can create substantial opportunities for companies that
are ready to enter and expand in these regions. The rise
in disposable income and the adoption of Western
consumer habits can lead to increased demand for a
wide array of products and services. For companies with
the foresight and capability to establish a presence in
these markets, the rewards can be substantial in terms
of increased sales, market share, and influence in
shaping market trends. Strategic Human Resource
Management plays a key role in enabling companies to
effectively navigate and harness these opportunities by
building and managing a workforce that understands and
can operate successfully in these diverse and dynamic
markets.

To take advantage of
financial inducements
The strategic motivation for
multinational corporations (MNCs) to
invest in foreign countries: financial
inducements offered by host countries.
Here are the main points:

1. Financial Inducements: Host countries often offer various
financial incentives to attract foreign direct investment from
MNCs. These inducements can take multiple forms:
• Direct Financial Assistance: This might include grants,
subsidies, or other forms of direct monetary support to help
establish and grow the MNC's operations in the country.
• Operational Cost Support: Agreements to cover or reduce
initial operational costs, such as infrastructure development,
training for local workers, or other startup-related expenses.
• Favorable Corporate Tax Rates: Lower corporate tax rates can
significantly reduce the overall cost of doing business, making a
host country more attractive for investment.

Examples of Financial Inducements in Practice:
Automotive Industry in the UK: The text mentions Nissan and
Toyota, which have created manufacturing plants in the UK,
supported by grants available in European development areas.
Such development grants are often used to stimulate economic
growth and job creation in regions that need investment.
Hyundai in Slovakia: The South Korean company Hyundai chose
Slovakia as the location for a new car plant because of the
financial incentives offered, in addition to low labor costs. These
financial incentives are typically part of a package designed to
make the host country a more attractive investment destination.
2. Economic Impact: These investments by MNCs can lead to
significant economic benefits for the host countries, including the
creation of factories, employment opportunities, and the
development of local supply chains.

Financial inducements are a key tool used by
governments to attract foreign investments that can
lead to job creation and economic development.
For MNCs, these incentives can reduce the cost and
risk associated with international expansion.
However, the competition among countries to
attract MNCs can be fierce, and it raises questions
about sustainability and the long-term benefits for
the host country, especially if these inducements
are phased out or if the MNCs move to other
locations with more attractive incentives.

Following the example of competitors
A phenomenon often observed in international
business, where the actions of one company in
entering a new foreign market can trigger a
domino effect among its competitors. This is
particularly relevant in dynamic and high-
growth potential markets. Here are the main
points:

1. Chain Reaction: When a leading company enters a new
foreign market, it can prompt other companies within the same
industry to follow suit. This is because firms want to maintain or
enhance their competitive position and not be left behind as
the industry evolves.
2. Emerging Markets Attraction: The text specifically mentions
the rush of leading companies to establish a presence in
emerging markets such as China and India. These markets are
attractive due to their large consumer bases, rapid economic
growth, and often, favorable production conditions.
3. Sourcing Products: There's also a trend for companies to
source specific products from countries that have a competitive
advantage in producing them. For example, consumer
electronics are often sourced from countries like Taiwan, South
Korea, and Malaysia due to their advanced manufacturing
capabilities and technology sector development. Textiles are
frequently sourced from Pakistan, the Philippines, and China,
where production costs can be lower.

This pattern of market entry and sourcing is part of
competitive dynamics and can be seen across various
industries. It underlines the importance of strategic
decision-making in international business, as moves by
competitors can significantly influence a firm's own
international strategy. Companies often conduct
thorough market analyses and monitor competitors
closely to ensure that they are not missing out on
opportunities that could potentially alter their market
standing.
Following competitors into new markets or sourcing
patterns can be a strategic move, but it also requires
careful analysis to ensure that the decision aligns with
the company's broader goals, capabilities, and market
conditions. It's not solely about keeping up with
competitors but also about capturing the unique
advantages that different markets offer to sustain and
grow a business globally.

To avoid host country protectionism
The strategy adopted by
multinational corporations
(MNCs) to circumvent
protectionist measures put
in place by governments
to shield their domestic
markets. Here's a
breakdown of the key
points:

1. Host Country Protectionism: Governments may
implement protectionist policies to safeguard
domestic industries and markets from foreign
competition. These measures can include tariffs
(taxes on imported goods), quotas (limits on the
quantity of goods that can be imported), and various
non-tariff barriers, such as complex regulations and
standards that are difficult for foreign companies to
meet.
2. Barriers to Foreign Entry: These protectionist
measures make it more challenging and expensive
for foreign competitors to enter and compete in the
host country's market, as they increase the cost of
exporting to these countries and may limit market
access

3. Establishing Local Production: In response to such trade
barriers, foreign companies may choose to set up production
facilities within the host country itself. This approach allows them
to be treated as a domestic company, circumventing the barriers
that affect imports. The examples provided include Volkswagen
setting up operations in China and Toyota and Nissan doing so in
the UK.
4. Joining Trade Agreements: Another response to
protectionism is for countries to join international trading
arrangements, such as the World Trade Organization (WTO).
Membership in such organizations often requires countries to
reduce tariffs and other trade barriers, promoting freer trade
among member nations. This can be an incentive for
governments to reduce protectionist policies and create a more
favorable environment for international trade and investment.

By establishing local production, MNCs can
not only avoid tariffs and quotas but also
benefit from other local advantages, such as
lower labor costs or closer proximity to
customers. This can be a crucial strategy for
MNCs that wish to maintain a competitive
edge in global markets. It also reflects the
complex interplay between international
business strategies and government policies,
where companies must adapt to the
regulatory landscapes of the countries in
which they operate.

Principal international business activities
The importance of import and export in international
business, highlighting their crucial role in the economies of
countries and the prosperity of companies. Here's a
summary of the key points:

1. Significance of Import and Export: While not the
primary focus of the chapter, import and export activities
are essential components of any country's economy. They
significantly contribute to national economic health and
the success of businesses.
2. Types of Exporting:
• Direct Exporting: This involves a company producing
goods and selling them directly to foreign customers. It
represents a direct engagement with the international
market.
• Indirect Exporting: This occurs when a domestic
manufacturer imports goods from a foreign exporter
and uses these imported goods as components in their
products, which may then be exported. Indirect
exporting is a way for companies to integrate global
supply chains into their production processes.

3. Growth of International Trade: The text
provides historical context, noting that during
the 30 years from 1948, annual world exports
grew by 6%, outpacing the general output
growth of 3.8%. This indicates a significant
expansion in global trade activities over this
period.
4. UK Trade Data: The provided figures for
the UK in 2002 illustrate the scale of trade
activities, with exports amounting to
approximately £189 billion and imports to
£250 billion. These figures underscore the
importance of trade to the UK economy.

The growth in import and export
activities reflects the increasing
globalization of the world economy and
the interconnectedness of national
markets. For businesses, engaging in
import and export can open up new
markets, provide access to a wider range
of resources and technologies, and
stimulate growth and innovation. The
data also highlights the balance between
imports and exports, which is a critical
factor in a country's trade policy and
economic strategy.

Foreign direct investment
A comprehensive overview of
Foreign Direct Investment (FDI)
and its dynamics in the global
economy. Here's a breakdown
of the key points:

1. Definition of FDI: FDI occurs when a company
acquires a controlling interest in a foreign company,
typically defined as owning 30% or more of the foreign
company's equity. This level of investment reflects a
significant commitment to and influence over the foreign
company.
2. Joint Ventures: When two or more companies share
ownership in an FDI, this arrangement is known as a joint
venture. Joint ventures allow companies to pool
resources and expertise and share risks in a foreign
investment.
3. Scope of FDI: According to Daniels et al. (2004),
around 63,000 companies worldwide have FDIs across
various goods and services sectors, indicating the
extensive nature of such investments globally.
4. Motivations for FDI: Companies pursue FDI for
commercial reasons, such as market access, resource
acquisition, efficiency, and strategic asset-seeking. The
growth of FDI has been facilitated by trade liberalization
policies implemented by governments worldwide.

5. Growth in Developing Economies: FDI in developing
economies has seen significant growth, with a notable increase in
investment from US$60 billion in 1997 to approximately US$161
billion in 2001.
6. Beyond Greenfield Investments: Harrison et al. (2000) note
that FDI is not just about establishing new ("greenfield")
production sites in foreign countries. A substantial portion of FDI
activity involves mergers and acquisitions. For example, the
acquisition of a 36.8% share in Nissan by Renault illustrates how
FDIs can reshape industry landscapes.
7. Global Nature of Products: Morrison (2002) points out that
many products, such as cars, are now international in nature. The
apparent country of origin can be misleading, as these products
may be assembled from components sourced globally.
8. UK FDI Statistics: The figures provided for the UK in 2003
demonstrate the scale of outbound and inbound FDI activities,
with UK companies investing significantly abroad and foreign
companies also investing in the UK.
9. Scale of FDI Growth: The text suggests referring to specific
examples (Key Concepts 3.2 and In Practice 3.3) to understand
better the growth scale in the top ten FDI host economies from
1997 to 2001.

This overview highlights the
complexity and significance of FDI in
the global economy. It underscores
how companies use FDI not just for
expanding operations but also for
strategic positioning, accessing new
markets, acquiring technology, and
benefiting from global production and
supply chains. FDI is a crucial element
in the global business landscape,
influencing economic patterns, trade
flows, and the structure of industries
worldwide.

Licensing and
franchises
An overview of licensing and
franchising, two common strategies
used by companies to expand their
businesses globally without
incurring the high costs and risks
associated with setting up new
operations overseas. Here are the
main points:

1. Licensing:
• Definition: Licensing is an arrangement where
a licensor permits a licensee to use its
intellectual property rights in return for a fee.
• Intellectual Property Rights: These rights may
include technical expertise, patents,
commercial knowledge, and, crucially, brand
names.
• Example: A foreign company might be
licensed to manufacture products under the
brand of the licensing company or use its
brand name as part of a product, like Nike or
Adidas on sports shirts. This allows the brand
to gain international exposure and generate
revenue without directly establishing
operations abroad.

2. Franchising:
• Specific Type of Licensing: Franchising is a specialized
form of licensing where the franchiser allows the
franchisee to use its intellectual property to conduct a
specific business activity.
• Brand Expansion Strategy: Franchising is seen as an
effective way for companies to spread their brand name
globally without the risks and expenses of establishing
foreign subsidiaries.
• Popularity in Retail and Services: Franchising is
particularly popular in the retail and service industries.
• Examples:
• Benetton: The fashion retailer sells a significant
portion of its products worldwide through franchises.
• Burger King: The US fast-food company has a vast
number of restaurants worldwide, with a majority
being franchises.

Both licensing and franchising allow companies to
expand their international presence by leveraging
local partners who understand the market and can
manage day-to-day operations. This approach
reduces the financial risk and management burden
that a company would otherwise face if it tried to
enter these markets alone. It's a strategic way of
growing a brand's global footprint while maintaining
control over how products or services are marketed
and delivered. For the local partners, it provides an
opportunity to operate a business with an
established brand and proven business model,
potentially leading to greater success than starting a
business from scratch.

The importance of the multi-
national company
The significance of multinational
companies (MNCs) in the context of
the internationalization of business and
strategic international human resource
management (SIHRM). Key points
include:

1. Predominance of MNCs: The text posits that the
most important aspect of business internationalization is
the predominance of MNCs. These companies play a
pivotal role due to their extensive global reach and
influence.
2. Significance in SIHRM: MNCs are crucial for SIHRM
because they develop strategies for managing
employees affected by the multinational nature of their
operations. This includes:
• International Managers: MNCs need sophisticated
international placement policies for managers who work
across different countries. These policies must consider
cultural, legal, and logistical aspects of international
employment.
• Production Employees: MNCs also face the challenge of
managing the workforce implications of relocating
production to lower-cost countries, which can include
making domestic employees redundant.

3. Definition of MNCs: The passage refers to Bennet
(1999), who notes the difficulty in defining MNCs. However,
Bennet suggests that the essence of an MNC lies in:
• Globalized Management Systems: This involves
adopting management systems, perspectives, and
strategic decision-making processes that are globally
oriented.
• Profit Maximization on a Global Scale: An MNC aims
to maximize profits worldwide, irrespective of the
locations of its various activities, the location of its
headquarters, or the nationality of its senior
management.
• Resource Allocation for Highest Returns: MNCs
allocate resources to areas offering the highest returns,
without being restricted to investments in specific
countries.
4. Strategic Role in MNC Operations: The multinational
context in which MNCs operate makes strategy, especially
concerning employee management, critically important.
Decisions related to human resources are integral to the
overall strategy and success of an MNC.

In summary, MNCs are central to discussions
about international business due to their
global scale and the strategic challenges they
face in managing a diverse, international
workforce. SIHRM within MNCs involves
balancing global operational objectives with
local considerations, such as labor laws,
cultural norms, and market conditions. This
requires a nuanced and well-informed
approach to HR policy and strategy.

SIHRM: definition and analytical
framework
An academic perspective on defining Strategic
International Human Resource Management
(SIHRM), contrasting it with domestic Strategic
Human Resource Management (SHRM), and
discussing its application within multinational
corporations (MNCs). Here's a summary of the
key points:

1. Starting Point: Harris et al. (2003) start with the
domestic SHRM framework to define SIHRM, which
connects HRM to the strategic management
processes of the organization and integrates various
HRM practices.
2. SIHRM: The definition of SIHRM extends the
domestic model to include the international
context, explicitly linking HRM to the strategy of the
MNC. However, the authors note that this definition
might be too simplistic as it may not capture the
full complexity of issues that SIHRM addresses.
3. Richness of SIHRM: The passage suggests that
the richness of SIHRM lies in the additional issues it
tackles beyond domestic SHRM. These issues arise
from the international activities of MNCs and affect
the international concerns and goals of these
organizations.

4. Schuler et al.'s View: Schuler et al. emphasize the importance of SIHRM
in the HRM policies and practices that stem from the strategic activities of
MNCs and their impact on the international concerns and goals of the
organizations.
5. Terminology: Schuler et al. prefer the term "multi-national enterprises"
over "multi-national companies" to include not-for-profit organizations with
international workforces, such as the United Nations and the International
Federation of the Red Cross. Nonetheless, the term "multi-national
companies" is used in the chapter being referred to.
6. Framework for SIHRM: Schuler et al.’s framework is designed to help
distinguish between domestic SHRM and SIHRM. It suggests that various
components and factors within the MNC's external and internal operating
environments influence SIHRM issues, functions, and policies and practices,
which then impact the MNC's concerns and goals.
7. Analysis of SIHRM: In analyzing SIHRM, the model proposes that one
must consider the HRM issues, functions, and policies and practices in the
context of the international concerns and goals of MNCs

Strategic MNC
components

1. Strategic Components of MNCs:
• Inter-unit Linkages: These are vital for MNCs that
operate globally, as they must decide how to
structure their organization effectively. Success
depends on differentiating and at the same time
integrating, controlling, and coordinating their
operating units worldwide. The goal is to balance
diversity (responding to various global environments)
with the need for coordination and control to remain
globally competitive and capable of organizational
learning.
• Internal Operations: MNCs need to adapt their
activities to the local environment of the host country
while contributing to the competitive strategy of the
whole MNC and the local unit. Local legal, political,
cultural, economic, and social issues can impact
integration with the overall MNC strategy, highlighting
the importance of coordination and control.

2. External Factors Influencing SIHRM:
• Industry Type: This determines the SIHRM activity, with a distinction
between global and multi-domestic industries. In global industries, an
MNC’s position in one country affects its position elsewhere, while in multi-
domestic industries, competition is largely independent from one country
to another.
• Competitor Activity: MNCs must pay attention to competitors' geographic
scope and overall business strategies, including market leadership and
mergers and acquisitions. The intensity of competition affects the
significance of SIHRM issues.
• Extent of Change: Rapid changes like product innovations, technological
advancements, and shifts in market competition require increased
coordination and cooperation, elevating the importance of SIHRM.
• Political and Economic Risks: These include changes in political stability
and financial complexities that create uncertainties for MNCs, necessitating
control through SIHRM policies and practices.
• Legal and Socio-Cultural Factors: Differences in labor laws and socio-
cultural factors across countries affect SIHRM. For example, outsourcing
work to countries like India requires understanding and adapting to the
local legal and socio-cultural environment.

3. Internal Factors Affecting SIHRM:
• Structure of International Operations: How the MNC
organizes its international operations influences SIHRM.
• Orientation to International Business: The MNC’s
approach to international business, whether it’s
ethnocentric, polycentric, regiocentric, or geocentric,
will impact SIHRM.
• Competitive Strategy: The overall competitive
strategy of the MNC guides the SIHRM approach.
• Experience in International Operations: The more
experience an MNC has with international operations,
the more sophisticated its SIHRM practices are likely to
be.

SIHRM is a complex field that must
take into account a myriad of
internal and external factors. These
factors shape the HR policies and
practices needed to manage a
diverse, globally dispersed
workforce effectively. SIHRM is not
just about applying domestic HRM
practices on an international scale
but rather about crafting strategies
that are responsive to the unique
challenges of operating across
different countries and cultures.

The structure of the
MNC’s international
operations

The orientation of the MNC
to its international business
The orientation of a multinational corporation
(MNC) towards its international business affects
its approach to Strategic International Human
Resource Management (SIHRM). The well-
documented framework by Perlmutter (1969)
and Heenan and Perlmutter (1979) identifies
three primary orientations:

1. Ethnocentric Orientation:
• The MNC manages foreign operations
from the parent-country headquarters.
• Key positions in the headquarters and
local operations are filled by parent-
country nationals.
• The underlying attitude is that the home
country's practices and personnel are
superior. There's a belief that more
complex products should be
manufactured in the home country to
maintain control over 'secrets' and
quality.

2. Polycentric Orientation:
• Each foreign operation is treated as a
separate entity with some level of decision-
making autonomy.
• Local nationals manage the subsidiaries and
are rarely promoted to positions in the
parent-country headquarters.
• Senior executives recognize that local
cultures are different, and that local people
are best suited to manage the local
operations. The subsidiaries are expected to
operate in a manner that is as locally
identified as possible, with the parent
company ensuring cohesion through
financial controls.

3. Geocentric Orientation:
•The MNC seeks to employ the best
individuals for key positions regardless of
their nationality.
•The goal is to adopt a global approach to
the organization, focusing on both
corporate and local objectives.
•Each part of the organization is expected to
contribute its unique competencies to the
global operations.

Perlmutter's framework is foundational in understanding how
MNCs' orientations towards international business shape their
human resource strategies and practices. An ethnocentric
approach can lead to a concentration of power and control
within the parent company, potentially limiting the local
responsiveness and initiative. A polycentric approach can
empower local operations but may lead to a lack of integration
and consistency across the MNC. A geocentric approach aims to
balance global integration with local responsiveness by
leveraging talent from across the world, but it can be
challenging to implement due to cultural differences and
complex coordination needs.
The orientation of an MNC is not static and can evolve over
time as the company's international experience grows and the
external environment changes. Each orientation has implications
for how an MNC manages and develops its workforce, how it
structures its organization, and how it formulates and
implements its global strategy. SIHRM policies and practices
must align with the chosen orientation to effectively manage
the international workforce and achieve the MNC's global
objectives.

The MNC’s competitive
strategy
The relationship between an MNC’s competitive
strategy and its approach to Strategic
International Human Resource Management
(SIHRM), drawing on the work of Schuler and
Jackson (1987) and Michael Porter’s (1985)
typology of organizational strategies. Here’s a
summary of the key points:

1. Porter’s Organizational Strategies: Porter identified
three primary types of strategies that organizations
pursue to achieve competitive advantage:
• Innovation: Focusing on developing new products or
services.
• Quality Enhancement: Improving the quality of
products or services.
• Cost Reduction: Reducing costs to offer products or
services at lower prices.
2. Schuler and Jackson’s Argument: They suggest
that each of these strategic types demands different
behaviors from employees, which can be encouraged
through the application of various HR practices.

3. Relevance to SIHRM: While Schuler and Jackson
originally focused on domestic HRM, their ideas are
also applicable to SIHRM. Even though different
organizational strategies require different behaviors
from employees, these behaviors are not necessarily
affected by the international location of the MNC’s
operations.
4. Knowledge Sharing Across the MNC: In an
international context, sharing knowledge and
expertise across different units of the MNC is an
effective strategy. This can be facilitated by:
• Specializing certain units in particular activities.
• Developing mechanisms for sharing the specialized
knowledge and expertise that these units develop
across the entire organization.

The underlying principle is that competitive strategies shape
the kind of employee behaviors that need to be cultivated
within the company. SIHRM practices must, therefore, be
designed to support these behaviors regardless of where
the employees are located globally. This might involve
adapting HR techniques to fit different cultural contexts
while maintaining alignment with the overall strategy.
For instance, an MNC focused on innovation might
emphasize creativity, flexibility, and knowledge sharing
among its global workforce. In contrast, an MNC pursuing
cost reduction might prioritize efficiency and standardization
of practices across its international locations. The strategic
approach to SIHRM ensures that HR practices are not only
consistent with the MNC’s global strategy but are also
adapted to the local contexts of its diverse operations.

The MNC’s experience in
managing international operations
The impact of an MNC's international
experience on its Strategic
International Human Resource
Management (SIHRM) practices. Here's
an interpretation of the key points:

• Impact of Experience: MNCs like Royal Dutch
Shell and Ford, which have extensive
international experience, tend to develop a
broader and more diverse array of HR practices.
Their long history of operating across different
countries has provided them with insights and
lessons on managing a global workforce.
• Learning and Flexibility: Through their
experiences, these MNCs have learned the
importance of flexibility in their SIHRM practices.
They have likely encountered a wide range of
business environments and HR challenges, which
have taught them the value of adapting their
policies and practices to accommodate local
needs and conditions.

• Accommodating Local Demands: The
MNC's ability to effectively manage
international operations is often enhanced
by its willingness and ability to tailor its
approach to different locales. This
includes recognizing and responding to
local labor laws, cultural norms, economic
conditions, and employee expectations.
• Evolution of SIHRM Practices: As MNCs
grow their international presence and
encounter diverse situations, their SIHRM
practices evolve. They move from a one-
size-fits-all approach to a more nuanced,
contextually aware strategy that aligns
with both global objectives and local
demands.

In essence, the depth and breadth of an
MNC's international experience can
significantly influence the sophistication of
its SIHRM. Companies with more experience
are better equipped to understand and
implement the complex HR strategies
needed to manage employees in various
international contexts. This experience also
contributes to the organization's overall
learning and its ability to innovate within
the realm of human resource management.

Organisational
drivers towards
and obstacles to
geocentrism

SIHRM issues:
functions,
policies and
practices
Schuler et al. (1993) identify inter-unit
linkages and internal operations as two
strategic components that significantly
impact SIHRM. Let's explore how these
components affect SIHRM issues,
functions, policies, and practices:

1. Inter-Unit Linkages:
• SIHRM Issues: Inter-unit linkages can lead to complex issues
such as aligning diverse corporate cultures, managing cross-
border teams, and ensuring communication effectiveness
among units that may be diverse in terms of language and
cultural practices.
• SIHRM Functions: The HR function must facilitate
collaboration and knowledge sharing across units, design
transfer and mobility programs, and manage international
labor relations.
• SIHRM Policies and Practices: Policies must be developed to
address compensation equity, performance management
across borders, and international career development paths.
Practices might include international talent management and
leadership development programs tailored to the needs of a
global workforce.

2. Internal Operations:
• SIHRM Issues: These can include adapting HR strategies to
local legal and cultural environments, managing expatriate
assignments, and integrating global HR policies with local
practices.
• SIHRM Functions: HR is tasked with ensuring that local
practices comply with global standards while meeting local
needs, managing the balance between global consistency and
local responsiveness, and overseeing the legal aspects of
employment in various jurisdictions.
• SIHRM Policies and Practices: This may involve creating
flexible HR policies that allow for variations in implementation
across different regions, establishing clear guidelines for
expatriate compensation and benefits, and developing locally
relevant employee engagement programs.

Both inter-unit linkages and internal
operations require SIHRM to be both globally
aligned and locally adapted. The HR function
in an MNC must navigate the delicate balance
between standardizing HR policies to maintain
global coherence and customizing them to fit
local market conditions and cultural norms.
This balancing act is critical to the MNC's
ability to function effectively on a global
scale and to leverage the unique strengths of
its diverse workforce.

Inter-unit linkages
Inter-unit linkages are crucial for
multinational corporations (MNCs) as they
try to manage their global operations
effectively. In the context of Strategic
Management (SIHRM), here's how these
linkages influence policies and practices:

1. Diverse Employee Mix:
• MNCs often aim to create a dynamic workforce composition that
includes parent-country nationals (PCNs), host-country nationals
(HCNs), and third-country nationals (TCNs). This mix brings together
diverse perspectives and skills, which can drive innovation and
adaptability.
• The presence of PCNs can help in transferring core corporate values
and practices across units, ensuring a certain level of consistency
and alignment with the headquarters' strategic goals.
• HCNs bring local knowledge and expertise, which are critical for
navigating local markets, regulatory environments, and cultural
nuances.
• TCNs can provide a bridge between the corporate perspective and
local insight, contributing international experience and facilitating
cross-border understanding and collaboration.

2. Linking HR Policies with Local Adaptation:
• SIHRM policies must be designed to maintain a
connection between different units while
allowing flexibility for local adaptation. This
means setting up core HR policies that define the
MNC's global culture and practices, while also
being adaptable to meet local legal requirements
and cultural expectations.
• Such policies could include global guidelines for
performance evaluation, ethical conduct, and
leadership expectations, with room for local HR
teams to adjust these to fit the host country
context.

3. Management Development for Organizational
Coherence:
• To foster organizational coherence, MNCs use management
development programs that cultivate a shared understanding
of the company's strategic vision, values, and operational
practices.
• These programs often include international rotations, global
leadership development initiatives, and cross-cultural training
to prepare managers to operate effectively within the MNC’s
diverse business environment.
• By doing so, MNCs aim to build a cadre of leaders who are
well-versed in the company's global strategy while being
sensitive to local practices and cultures.

In summary, inter-unit linkages in SIHRM are managed
through a careful blend of standardized global policies and
practices that also respect and incorporate local differences.
The goal is to ensure that all units of the MNC operate in
harmony, supporting the overall business strategy while
being responsive to the environments in which they operate.

Establishing a mix
of employees in
the local
operation which is
a mix of PCNs,
HCNs and TCNs
Outlines traditional and evolving
strategies for coordination and
control in multinational corporations
(MNCs), specifically in relation to
international staffing policies and
practices. Here's a breakdown of the
key points:

1. Traditional Coordination and Control:
• Historically, MNCs have achieved coordination and control
by appointing parent-country nationals (PCNs) as managers
in overseas operations. This was common among Japanese
companies in the 1980s and 1990s and has been practiced
by companies from other countries as well, such as the UK
DIY retailer's expansion into China.
• Placing PCNs in key positions ensured that the subsidiary
adhered to the corporate culture and practices of the
parent company.
2. Preparation for Expatriation:
• As part of this strategy, significant emphasis was placed on
preparing expatriates for overseas assignments to ensure
they could effectively manage foreign operations in line
with the company’s goals.

3. Cost Considerations:
The case study of Halcrow indicates that the traditional approach of
sending PCNs on overseas assignments has become too expensive,
leading companies to consider hiring third-country nationals (TCNs)
and host-country nationals (HCNs) as they are often more cost-
effective.
The availability of skilled labor in countries like China and Pakistan
makes the hiring of TCNs and HCNs a viable alternative to the
traditional use of expatriates.
4. Challenges in Coordination and Control:
Relying more on HCNs and TCNs can pose challenges for maintaining
coordination and control within the MNC.
Strategies to manage these challenges include developing clear
policies and procedures, imposing financial control targets, and
transmitting both explicit and tacit knowledge to local managers.

5. Knowledge Transfer:
• The explicit knowledge transfer is accomplished through employee
handbooks, training manuals, and standard operating procedures.
• Tacit knowledge is conveyed through the behavior and example of
expatriate managers who demonstrate the work style and approach
valued by the company.
6. Active Involvement of Expatriate Managers:
• At DecoStore, expatriate managers were not only responsible for
introducing and activating training, recruitment, and promotion
procedures but also for participating in their execution.
• They set recruitment criteria and selected candidates who matched
the organizational culture and practice, while their daily behavior
served as a model for the desired work style and approach.

The passage emphasizes the importance of a strategic approach to
SIHRM that balances cost-effectiveness with the need for maintaining a
consistent corporate culture and operational control across
international operations. The use of PCNs, TCNs, and HCNs must be
aligned with the overarching strategy of the MNC and adapted to the
local context, ensuring that the international staff are well-integrated
into the company's global standards while also being responsive to
local market dynamics.

Establishing HR policies and practices that
link units but allow local adaptation
While coordination and control are crucial
for multinational corporations (MNCs), it's
equally important for HR policies and
practices to be flexible enough to adapt
to local conditions. Here’s a further
explanation of this concept:

Balancing Global and Local Needs:
• MNCs must find the right balance between enforcing
global HR standards and allowing for the adaptation of
these practices to suit local environments. This is
sometimes referred to as the balance between "global
integration" and "local responsiveness."
Adaptation to Local Conditions:
• Local adaptation involves adjusting HR policies and
practices to align with the legal, cultural, economic, and
social conditions of the host country.
• This could mean modifying recruitment strategies to attract
local talent, adjusting compensation and benefits to be
competitive within the local market, or aligning work
practices with local labor laws and cultural expectations.

Confirmed by Research:
The reference to the IRS Employment Review study
indicates that this approach is not just theoretical but is
supported by empirical research. The study suggests that
senior HR managers in transnational companies
recognize the need for local adaptation of HR practices.
Implications for SIHRM:
For Strategic International Human Resource Management
(SIHRM), this means developing a framework of policies
that establish a cohesive corporate culture and unified
operational approach while granting local HR managers
the autonomy to make necessary adjustments.
SIHRM must ensure that any local adaptations still
support the overall strategy and objectives of the MNC.

Implementation of Adaptation:
• To implement this, MNCs might use a set of core HR policies
that define the overall strategy and objectives and a set of
flexible guidelines that can be customized by local managers.
• Communication and regular interaction between the central HR
team and local HR managers are vital to facilitate this
adaptation process and ensure that local practices are not
diverging from the global strategy.
In summary, successful SIHRM requires a sophisticated approach
that acknowledges the importance of standardization for
coordination and control but also embraces flexibility to ensure
that HR practices are relevant and effective in diverse local
markets. This approach allows MNCs to maintain a strong global
presence while being competitive and compliant in local
markets.

Outlines various aspects of Strategic
Management (SIHRM) within
multinational corporations (MNCs),
emphasizing the importance of
adapting HR practices to local
conditions while maintaining overall
organizational coherence and strategy.
Here’s a detailed breakdown:

1. Management Development:
• Development of international managers is
critical, focusing on international mobility,
experience, and fostering a global mindset.
This involves sending potential leaders on
international assignments and integrating
these experiences into the main
management development program.
• Attributes of a global mindset include
conducting business on a global scale,
managing cross-cultural teams, and
adapting to the complexities of
international business.

2. Internal Operations and Local
Responsiveness:
• MNCs need to be responsive to local
environments while maintaining
coordinated action with other units. This
involves adapting HR practices to match
the competitive strategy of the unit and
the local cultural and legislative systems.
• Appointing a host-country national (HCN)
as the HR manager can be advantageous
as they bring local knowledge, which is
vital for adapting to local cultural and
legislative needs.

3. Creating Flexible HR Policies:
• MNCs need a flexible modus
operandi for HR policies to adapt to
changing conditions. This flexibility
often depends on the HR
management structure within the
MNC.
• For instance, Elf Aquitaine has a
structure that allows for quick
response to local changes while
maintaining consistency with the
overall MNC strategy.

4. Developing Adaptable Global HR Policies:
The importance of two-way communication (the
'dotted line') in MNCs is highlighted. It ensures that
global HR policies are adaptable to local practices.
5. MNC Concerns and Goals:
The concerns and goals for MNCs as identified by
Schuler et al. include global competitiveness,
efficiency, local responsiveness, flexibility, learning,
and knowledge transfer.
The importance of each concern or goal varies
depending on the MNC’s circumstances, but global
competitiveness and efficiency are universally
applicable.
SIHRM plays a crucial role in achieving these goals,
with the next chapter section dealing with the
capabilities required for this aim.

In summary, the passage underscores the
complexity of SIHRM in balancing global
integration and local responsiveness. It
highlights the need for developing
international managers with a global
mindset, creating adaptable HR policies,
and maintaining organizational coherence
across various geographical locations. The
ultimate goal for MNCs is to achieve global
competitiveness and efficiency while being
responsive and flexible to local market
demands.

The capabilities
needed to
devise and
implement
SIHRM
Delves into the role of management
and competence development in
Strategic International Human
Resource Management (SIHRM),
emphasizing its importance at three
levels: organizational, line
management, and HR professional.
Here's a detailed breakdown:

1. Organizational Capability:
• Rooted in management change, organizational
design, and leadership, it focuses on internal
processes, systems, and practices to meet
customer needs and direct employee skills and
efforts towards organizational goals.
• The 'resource-based view of the firm' highlights
core competences as intangible assets.
Organizational capability is seen as the sum of
learning across individual skill sets and
organizational units, providing unique benefits
to customers.
• Building international organizational capability
might involve exploiting core competences
globally, identifying new resources in untapped
markets, and reconfiguring value-adding
activities across a wide geography.

2. Indicators of Organizational Capability:
• As per Ulrich (2000), indicators include efficient
organizational structures, strong brand identity,
talented employees, a culture of innovation and
learning, effective cross-border communication, and
clear accountability.
3. Line Management Competences:
• Global managers need core capabilities like managing
action, people, information, coping with pressure, and
business understanding.
• They should develop international business
knowledge, cultural adaptability, perspective taking,
and innovative problem-solving skills.
• Schneider and Barsoux’s (2003) concept of a 'global
mindset' is critical for working effectively across
organizational, functional, and cultural boundaries.

4. Competences of HR Professionals:
• Research by Sparrow et al. (2004) for the Chartered
Institute of Personnel and Development indicates
the importance of communication processes,
recruitment and selection, pay and benefits, training
and management development, performance
management, culture change, and strategic planning
in international HR.
• Industrial relations, employment law, and equality
and diversity issues often have a more domestic
focus, while communication is crucial for knowledge
management and sharing within global organizations.
5. Challenges for HR Professionals:
• The challenge is to develop mechanisms for
knowledge sharing, such as information technology
solutions and company intranets, to facilitate global
knowledge exploitation.

In essence, the passage underscores
the need for developing specific
competencies and capabilities at
various levels within an organization
to ensure effective SIHRM. This
includes fostering a global mindset
among managers, ensuring that HR
practices align with both global
strategy and local needs, and
leveraging communication and
knowledge management tools to
enhance organizational effectiveness.

The cultural perspective on SIHRM
The critical role of culture in international business and
International Human Resource Management (IHRM), as argued by
Briscoe and Schuler (2004). It covers various aspects, including
organizational capabilities, line management competences, HR
professional competences, and the management of cultural
differences by multinational corporations (MNCs). Here's a
detailed breakdown:

1. Importance of Culture in IHRM:
Culture is fundamental in conducting international business and IHRM. The same
HR policies may not yield the same results in different cultural contexts,
highlighting the necessity of adapting HR practices to local cultures.
2. Organizational Capability:
Focuses on internal processes, systems, and management practices. It includes
the resource-based view of the firm, emphasizing core competences and the
importance of collective learning and skillsets.
3. Line Management Competences:
Global managers need a blend of core capabilities and specific global capabilities,
including international business knowledge, cultural adaptability, perspective
taking, and innovative problem-solving.

4. HR Professional Competences:
Involves attention to communication processes, recruitment, pay and benefits, training,
and strategic planning. The study by Sparrow et al. (2004) indicates these functions are
crucial for overall organizational effectiveness in an international context.
5. Managing Cultural Differences in MNCs:
Schneider and Barsoux (2003) categorize strategies for handling cultural differences:
ignoring, minimizing, and utilizing these differences.
MNCs may adopt different approaches based on their international business orientation:
ethnocentric, polycentric, or geocentric.
6. Ignoring Cultural Differences:
This approach focuses on standardization and efficiency, often seen in marketing
strategies of international brands but can be complex when applied to HR due to local
legal and cultural factors.

7. Minimizing Cultural Differences:
Acknowledges cultural differences but allows local autonomy in
decision-making, adapting the corporate culture to local conditions.
8. Utilizing Cultural Differences:
Embraces cultural differences as a source of learning and competitive
advantage. This approach supports a broader range of strategic thinking
and fosters a global mindset among employees.
9. Measuring Cultural Differences:
Hofstede’s and Trompenaars’ frameworks for understanding national
cultural differences are discussed. These frameworks help managers
formalize their understanding of cultural differences and adapt
strategies accordingly.

10. General Warning Against Stereotyping:
The text cautions against generalizing or stereotyping cultures,
emphasizing the dynamic nature of national cultures and the
complexities of social life.
In summary, the complexity of managing cultural differences in
international business and HRM. It highlights the need for MNCs to
develop specific competences and strategies that not only recognize
cultural diversity but also leverage it for organizational learning and
competitive advantage. This requires a nuanced understanding of
different cultures and careful adaptation of HR policies and practices
to local contexts.

What are the effects of national cultural differences
on SIHRM practices?
The significant impact of national cultural differences on
various Strategic International Human Resource Management
(SIHRM) practices within multinational corporations (MNCs).
The main areas affected by cultural differences include
selection, training, performance management, and pay.
Here's a breakdown of the key points:

1. Selection:
• Cultural differences raise important
questions regarding the emphasis on
knowledge versus skills, educational
and social background, generalist
versus specialist skills, and issues
related to gender, disability, race,
religion, and age in the selection
process.
• The approach to selection needs to
consider not only competence but
also integration into the
organization’s culture.

2. Training:
•Training must consider who
conducts the training and how the
content and method, including
language, are tailored to the host
country.
•The risk of ethnocentrism is high in
training, especially if it's solely
based on the practices and
perspectives of the MNC’s
headquarters.

3. Performance Management:
•Transferring performance management
systems across cultures can lead to
conflicts due to differing attitudes towards
individual responsibility, team efforts,
personal performance objectives, and
feedback.
•Cultural nuances, such as the perception
of performance objectives in Russia and
personal trait assessments in the USA,
significantly influence performance
management practices.

4. Pay:
•Pay systems can be complex, particularly
regarding the link between individual, team,
or organizational performance and
compensation.
•Cultural attitudes toward pay differentials
and performance-related pay vary
significantly, as illustrated by the example of
Chinese organizations dealing with 'red-eye
disease' or jealousy related to pay
disparities.

5. Cultural Impact on HR Activities:
•Cultural differences impact numerous HR
activities, including strategic planning,
organizational structure, decision-making,
recruitment, employee socialization,
performance management, training, career
development, employee involvement, pay
and benefits, commitment to organizational
goals, change management, and attitudes
towards collective representation.

6. Attention to International Issues:
•HR professionals are increasingly required to
focus on international issues, necessitating a
broad and nuanced understanding of various
cultural contexts.
•The chapter notes the Western perspective
on SIHRM but acknowledges that the future
will likely see more diverse and complex
approaches as non-European and North
American companies expand globally.

In summary, the passage highlights the
crucial role of understanding and adapting
to national cultural differences in SIHRM
practices. This adaptation is essential for
MNCs to effectively manage their global
workforce, align HR strategies with local
cultures, and maintain organizational
coherence and effectiveness across
diverse cultural environments.

Chapter 3 SHRM in a changing and shrinking world

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