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Lesson 02 - Strategic International Human Resources Management and Employee Relations (SIHRM/ER)
Lesson 02 Commentary
In this lesson, we will explore strategic international HRM in firms operating across national borders. Having introduced IHRM and ER, it is now time to think about how corporations strategically manage their people across borders.
Let's first define strategic international human resource management. Briscoe et al. state that SIHRM is "the part of IHRM that focuses on creating and implementing IHRM policies and practices that help achieve an MNE's international vision and objectives, that is, its international strategy. It also involves the strategic management of the IHR function and department itself."
We are now familiar with all aspects of HRM as they relate to firms working internationally and how they manage people across borders. As you might expect, due to the great variety of firms operating internationally, there are choices that these firms can make in terms of how they approach their international operations. One of the most well-known frameworks identifies three possible approaches to management: ethnocentric, polycentric, and geo or regiocentric.
Approaches to International Management
The ethnocentric approach has as its focus the home country or the headquarters of the organization. All of the core strategic activity of the firm takes place here, and any subsidiaries in other countries take second place to this central hub. This means ethnocentric organizations often use parent (home) country nationals (PCNs) to staff subsidiaries overseas so that they can control activities there.
Polycentric organizations take the opposite philosophy, decentralizing control and activities to all of the subsidiary operations worldwide. The host rather than the home country is central, and host country nationals (HCNs) will lead these subsidiaries due to their superior knowledge of local markets (compared to parent country nationals sitting in the distant headquarters). This gives the subsidiary great flexibility and autonomy to do what they need to do to fit into the local context.
The third approach attempts to bridge the previous two philosophies. The geocentric approach to management considers the globe as one big marketplace, no longer differentiating between parent and host countries. The regiocentric view is similar, just dividing the globe into regions, such as the Americas, Asia, Europe, etc. Here, the aim is not to focus on whether to use PCNs or HCNs as a staffing strategy, or even to use people from a third country (i.e. neither the parent nor host country – TCNs); instead the focus is on finding the best person for the job wherever they may come from.
Internationalization Strategies
These approaches to management can be linked to the overall internationalization strategy of an organization. Again, firms can make choices in how to internationalize, and a common framework used to explain this is that developed by Bartlett and Ghoshal as noted by Harzing (2000).
The four strategies are
- international,
- global,
- multi-domestic, and
- transnational.
The ‘international’ strategy is actually the least sophisticated of the four. This usually involves firms partnering with others overseas to spread the use of a certain technology or business model. The ‘global’ strategy can be matched with the ethnocentric management approach: the firm is tightly managed from the central headquarters. The ‘multi-domestic’ strategy is again an opposite approach to the global strategy, and fits well with the polycentric management approach, giving subsidiaries maximum autonomy. Finally, the ‘transnational’ strategy attempts to integrate a best practice approach drawing from both headquarters and subsidiary experiences. With its geo- or regiocentric approach, its networked structure can, however, be particularly complex to manage.
Please note that you may see these terms (in particular: global, international, transnational) used interchangeably in the literature. Always check what is meant by the term being used in the particular context of your reading.
The key frameworks discussed here help to make sense of the different options facing firms in their international operations. The supporting readings will explain in greater detail the characteristics of each of these frameworks.
Presentation
The following presentation provides additional explanation of the increasingly complex world of international human resources and employment relations. It expands on concepts in the commentary, textbook, and supporting readings.
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SABINE BRUGGEMAN: The important part to understand is that there are four stages of internationalization and that the strategy differs by the level of integration of the organizational structure and the local responsiveness to local markets.
Once they go international, it's still a very domestic, home-based, ethnocentric, perspective on things. There is no real international strategy. It's just looking at different markets outside our home country where we want to sell our products.
The organization decides on certain test markets and simply sends their product out. It will be salespeople traveling there trying to make arrangements locally to legally sell the product. And that's it.
Once this is a bit more established, there is a little bit more communication between the domestic business and the individual sales opportunities in different countries. So the home office learns a lot more about those different markets. That is when a multiple domestic approach sets in. It's basically a strategy of perceiving multiple domestic markets. That means that the home office is simply an independent business as are the developing local subsidiaries.
From a simple sales outfit, it develops into real local independent companies. Now, the key about that is that it's a very hands off approach from the home office from the home base. The domestic business that started it all fades in the background, and the individual countries' subsidiaries run their own business in the most suitable way.
Now, at that point, of course, the home office realizes that it may lose either contact or money, because they will find similarities across it. So they will be looking to take on in the next a much stronger role. And this is when we start to talk about truly global strategies, whether it's a strong home office who overrides any approaches in terms of policies and procedures to all the subsidiaries.
They're trying to build the center. And they actually built a center with corporate functions in the home office, in the home headquarters. And all the subsidiaries have to align to that. It's a very much standardized approach. The subsidiaries have to be receptive.
They will be told what to do, regardless, at certain times, if it fits the local markets or not. Overriding is a cost efficiency standardization goal in this strategy, the global strategy. It's a strong head office.
As time progresses, of course, it's a two way communication. And I believe it's also facilitated heavily by people, by expatriates moving from subsidiary to subsidiary. And they transfer their knowledge, not only back to headquarters, but they start to transfer their knowledge between subsidiaries. We talk about large global multinational businesses.
The strategy as such is called transnational, which tries to leverage both the corporate efficiencies and the local customization. In the ideal state, it's really a networked organization of equal footing, where everybody learns from each other. Again, it's an ideal state.
So what happens in reality is that the subsidiaries will more so develop a life of their own. And the corporate center goes into the background. It's almost similar to the multi-domestic approach.
References
Harzing, A. (2000). An empirical test and extension of the Bartlett and Goshal typology of multinational companies. Journal of International Business Studies, 31, 101–120.